Question

# What does a current ratio of 1.4 mean? For each \$1 of inventory, the company has...

What does a current ratio of 1.4 mean?

For each \$1 of inventory, the company has about \$1.40 of current liabilities.

For each \$1 of current assets, the company has about \$1.40 of current liabilities.

For each \$1 of total assets, the company has about \$1.40 of current liabilities.

For each \$1 of current liabilities, the company has about \$1.40 of current assets.

None of these answers are correct

What does an inventory turnover ratio of 6.3 mean?

 The company sold its inventory each 6.3 months The company sold its inventory approximately 6.3 times a year. The company sold its inventory each 6.3 days. The company takes about 6.3 years to sell its inventory. None of these answers are correct

1) We know, Current ratio is equal to current assets divided by current liabilities. So, a current ratio of 1.4 would mean for ech \$1 of current assets, the company has \$1.40 of current liabilities.

2) Inventory turnover ratio depicts the number of time the inventory is sold in a particular period i.e generally a year. In this question, an inventory turnover ratio of 6.3 means "the company sold its inventory approximately 6.3 times a year"