Tag: liquidity ratios

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Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following items is not taken into account while computing quick ratio?

  1. Cash

  2. Bank Balance

  3. Bank overdraft

  4. Sundry creditors
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total amount of cash and cash equivalents + marketable securities + accounts receivable to the amount of current liabilities.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following liabilities are taken into account for acid test ratio?
(i) Trade creditors
(ii) Bank overdraft
(iii) Cash credit
(iv) Outstanding expenses

  1. i & ii

  2. i & iv

  3. i, ii, iii & iv

  4. ii, iii & iv
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Acid test ratio = quick assets / current liabilities. All current liabilities are considered while calculating acid test ratio.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

The excess of current assets over current liabilities is called as ___________.

  1. Net tangible worth

  2. Net worth

  3. Gross working capital

  4. Net working capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The formula for calculation of "Net working capital" is as follows:

Net working capital = Total current assets - Total current liabilities
Net working capital is the aggregate amount of all current assets minus current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of a company management to utilize assets in an efficient manner.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

What is the meaning of current ratio of less than one?

  1. Current liabilities < Current assets

  2. Fixed assets > Current assets

  3. Current assets < Current liabilities

  4. Share capital > Current assets
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Current ratio is the measure of liquidity of a company at the certain date. A high current ratio can be signs of problems in managing working capital. When current ratio is low and Current liabilities exceeds current assets, the company may have problems in meeting its short term obligations.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Suppliers and Creditors of a firm are interested in ______.

  1. Profitability Position

  2. Liquidity Position

  3. Market Share Position

  4. Debt Position
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Liquidity position signify the short term solvency position of the company. Suppliers and creditors are short term liabilities, they are interested to know the liquidity position.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following ratios is termed as 'acid test ratio' or 'quick ratio'?

  1. Fixed assets Ratio

  2. Current Ratio

  3. Liquidity ratio

  4. Debt-Equity ratio
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Liquidity ratio measures the company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio and quick ratio. It also indicates cash flow positioning. It is also called as acid test ratio and quick ratio.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Quick ratio is calculated by using the following formula ___________________.

  1. $\cfrac { Cash+near  cash+debtors - Inventories }{ Current\quad liabilities } $

  2. $\cfrac { Cash+debtors }{ Current\quad liabilities } $

  3. $\cfrac { Cash }{ Current\quad liabilities } $

  4. $\cfrac { Cash+near\quad cash+debtors }{ Current\quad assets } $
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Quick ratio is calculated by dividing liquid current assets by total current liabilities. Liquid current assets include cash, marketable securities and receivables. Cash includes cash in hand and cash at bank.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

If the current ratio is $2 : 1$ and working capital is $Rs. 60,000$, what is the value of the current assets?

  1. $Rs. 60,000$

  2. $Rs. 1,00,000$

  3. $Rs. 1,20,000$

  4. $Rs. 1,80,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Current Ratio = Current Assets (C.A)/ Current Liabilities (C.L)  = $2/1$

So, CA= $2$ CL

Now, Working Capital = Current Assets(C.A) minus Current Liabilities (C.L) = $Rs.60000$
So, C.A - C.L = $60000$
       $2$ C.L-CL = $60000$
        C.L = $Rs. 60000$

Now, C.A = $2$ x $60000$ = $Rs. 120000$

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

The current ratio is _________________________.

  1. $\cfrac { Current\quad assets }{ Current\quad liabilities } $

  2. $\cfrac { Cash+near\quad cash+debtors }{ Current\quad liabilities } $

  3. $\cfrac { Liquid\quad assets }{ Current\quad liabilities } $

  4. $\cfrac { Current\quad liabilities }{ Current\quad assets } $
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Using the Balance Sheet, the current ratio is calculated by dividing current assets by current liabilities: