Liquidity

Liquidity measures the ability of a business to convert its current assets into (a)   to repay its current liabilities when they fall due.

• cash
• money

Match the following

• current assets- current liabilities

• working capital

• Total current assets/ Total current liabilities

• quick ratio

• Total quick assets/ total current liabilities

• current ratio

The following equation explains the QUICK ASSETS.

• Total assets- inventory- prepayments

• Total current assets- inventory- prepayments

• inventory + prepayments

• Total current assets- trade receivables- inventory

Jaazib Trading buys and sells fruits. The current assets are as follow. Calculate the QUICK ASSETS.

Cash= $50 000

Trade receivables= $15 000

Prepaid rent= $2 000

Inventory= $23 200

Mathematical Equivalence

ON

The following explains QUICK RATIO.

The current ratio measures the ability of a business to pay its ​ (a)   using its ​ (b)  

• current liabilities
• current assets

The quick ratio measures the ability of a business to pay its ​ (a)   using ​ (b)   assets, which can be converted into ​ (c)   more quickly than other current assets such as inventory and prepayments.

• current liabilities
• quick
• cash

Which of the following measures will help to improve liquidity?

• Raise funds in cash by issuing shares

• Take up a long-term loan to increase cash

• Generate more cash sales to increase cash

• All of the above

A business with high profitability may be selling a lot on credit. However, it may not be liquid as it may have difficulty collecting ​ (a)   from its ​ (b)   customers or it may have used ​ (c)   to buy non-current assets so as to generate more income in the future.

• payment
• credit
• cash