Question

Because the assets included in the current ratio have different levels of liquidity that reflect different degrees of collectability, many companies use which of the following ratios to measure current liquidity?

A. Current ratio.

B. Working capital.

C. Quick ratio.

D. Debt ratio.

The average collection period reveals

A. how many days, on average, it takes between when an order is placed until the cash is collected.

B. how many days, on average, the company takes to collect cash from a credit sale.

C. how many days, on average, the company takes to collect past due accounts.

D. how many days, on average, it takes between when an original contact is made to collect an account until the cash is collected.

Generally a high inventory turnover rate is considered

A. good.

B. bad.

C. indifferent.

D. proportionate to net income.

A low inventory turnover might signal

A. a problem with old and obsolete inventory.

B. slow-moving inventory.

C. too much inventory.

D. a problem with old and obsolete inventory, slow-moving inventory, and too much inventory.

Answer 1

Part 1)

The correct answer is

C) Quick Ratio

Explanation

Most companies in the present world use quick ratio to measure its liquidity conditions. As it gives better picture of companies liquidity as compared to current ratio

Part 2)

The correct answer is

B) How many days, on average, the company takes to collect cash from a credit sale

Explanation

Average collection period is calculated by 365 days/ sales turnover ratio. It tells about in how much time it takes to collect cash from credit sales.

Part 3)

The correct answer is

A) Good

Explanation

Higher inventory turnover ratio is consider goods, as it means companies inventory does not include any slow moving or obsolete inventory and company is making best use of its inventory.

Part 4)

The correct answer is

D) a problem with old and obsolete inventory, slow moving inventory and too much inventory

Explanation

Low inventory turnover means the company is not making best use of its inventory due to obsolete , slow moving and too much inventory in stock, as company is unable to sold this stock. So the company has lower inventory turnover ratio