FC L4 P2

Formula: Current assets/Current

liabilities

Answer explanation

Current ratio

otherwise known as the

working capital ratio,

Answer explanation

Current ratio

measures the

ability of a business to meet its

short-term obligations that are due

within a year.

Answer explanation

Current ratio

Avery high

_ may mean there is excess

cash that should possibly be invested

elsewhere in the business or that there

is too much inventory. Most believe that

a ratio between 1.2 and 2.0 is sufficient

Answer explanation

Current ratio

Generally acceptable current ratio

is .

Answer explanation

2:1

Quick ratio

Formula:

Answer explanation

Cash+Marketable

securities+Accounts receivable

net/Current asset

also known as the acid-test

ratio

Answer explanation

Quick ratio

measures the ability of a business

to pay its short-term liabilities by having

assets that are readily convertible into

cash

Answer explanation

Quick ratio

These assets are considered

“quick” assets because they can be

quickly and easily converted into cash.

Answer explanation

These assets are cash,

marketable securities, and accounts

receivable.

A ratio of 1:1 means that

a social enterprise can pay its bills

without having to sell inventory.

Answer explanation

quick ratio