Question

3.Which of the following is the most desirable quick ratio?

a. 0.95

b. 0.50

c. 1.00

d. 1.20

4. A current liability is a debt that is reasonably expected to be paid

a. between 6 and 18 months

b. out of currently recognized revenues

c. out of cash currently on hand

d. within one year

Answer 1

3. The most dersirable quick ratio is:

c) 1

Quick ratio is a acid test ratio which measures if the company has enough current assets to pay for its immediate liabilities. This ratio should ideally be more than 1 becuase a ratio less than 1 means the current assets are less than the immediate obligations and hence the company will not be able to pay for it. A very high ratio is also not desirable becuase it means the company has idle cash which is not being used for reinvestment or returns to shareholders. Moreover, the ideal ratio varies from industry to industry.

4) A current liability is a debt that is reasonably expected to be paid

d. within one year

current liabilities are liabilities which should be paid within 12 months or a year. most common types of current liabilites include accounts payable, salary payable, notes payable, short term debt.