Question

a
common rule of thumb is that a companys acid test ratio should have
a value near or higher than 1 to conclude that a company is
unlikely to face near term liquidity problems. true or false?

Answer #1

The given statement is **TRUE.**

**Acid test ratio of 1 or greater than one shows that
company have sufficient liquid assets to meet out its short term
obligations.**

**it also shows that the company is ability to pay of its
current liabilities without selling long term assets. Therefor
there will not be any liqiidity issues for the
company.**

**Acid** **test**
**ratio** **is**
**calculated** **to**
**serve** **as** **a**
**supplementary** **check**
**on** **liquidity**
**position** **of** **the**
**business**.

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288,250 Merchandise Inventory June 30, 2018 June 30, 2017 70,000
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Long-Term Liabilities 140,000 Other Current Assets 150,000 Other
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Ratio
Industry Average
Return on total assets
1.00
Book value per common share
10.00
Days' sales in inventory
300.00
Return on shareholders' equity
20.00
Times interest earned ratio
1.00
Questions:
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