Question

In: Finance

Which of the following ratios does not represent some form of comparison between accounts in current...

Which of the following ratios does not represent some form of comparison between accounts in current assets and accounts in current liabilities? Question 20 options: a) Current ratio b) Cash ratio c) Acid-test ratio d) Working capital e) Merchandise inventory turnover.

Solutions

Expert Solution

The ratio that does not represent some form of comparison between account in current assets and account in current liabilities is :-

Answer :- e) Merchandise inventory turnover

Explanation :-

The formula of merchandise inventory turnover ratio is :- cost of goods sold / average inventoy

So, we can see that , this formula is not comparing current asset with current liabilities so, option e) merchandise inventory turnover is the answer .

Explanation for rejection of other points :-

Current ratio is calculated by dividing current asset by the current liabilities , so, option a is wrong .

Cash ratio is calculated by dividing cash & cash equivalents by the current liabilities . So, option b is also wrong .

Acid test ratio is calculated by dividing ( current asset - inventory ) by current liabilities, so, option c is also wrong .

Working capital ratio is calculated by dividing total current asset by total current liabilities . So, option d is also wrong .

So, the right option is e) merchandise inventory turnover


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