Question

Which of the following is true for Coleman Company (a manufacturing company) in 2019? A. Its...

Which of the following is true for Coleman Company (a manufacturing company) in 2019?

A.

Its quick ratio is smaller than its current ratio.
B.

Its current ratio is smaller than its quick ratio.
C.

Its quick ratio is the same as its current ratio.
D.

If its quick ratio is 2019 is higher than its quick ratio in 2018, then its solvency risk is 2019 is lower than its solvency risk in 2018.
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Answer #1

The correct answer is (Its quick ratio is smaller than its current ratio.)

Explanation

For any company the quick ratio will always be equal to or smaller then the current ratio.

Current ratio = Current Assets/Current Liabilities

Whereas the quick ratio = (Current Assets-stock-prepaid Expenses) /Current Liabilities

It can be inferred from the above formula that numerator will always be lower in quick ratio then current ratio. Being denominator the same quick ratio will always be lower.

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