Question

A company has a quick ratio of 2.3 and a current ratio of 2.8. Industry averages are 2.0 for the quick ratio and 3.1 for the current ratio. Which of the following statements is most likely true?

Question 2 options:

a)The company has less inventory than the industry benchmark.

b)The company has more receivables than the industry benchmark.

c)The company has less receivables than the industry benchmark.

d)The company has more inventory than the industry benchmark.

Answer #1

option (a) & (b)

Quick Ratio = (Cash equivalents + marketable securities + accounts receivables) divided by current liabilities

Since Quick Ratio of company is 2.3 as compared to 2.0 of industry, it is most likely that company either have extra cash or securities or receivables.

Also since current ratio of the company is 2.8 as compared to industry which is 3.1.

Since Current ratio is less and quick ratio is more, it is most likely that receivables is more as quick ratio is high and inventory is less as current ratio is low.

Therefore both options are possible.

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