Financial ratios

Question

We calculate the company Liquidity Quick Ratio by Dividing___________.

A. net profit by company Total Loans.

B. net profit by company Shareholders equity.

C. net profit by company Current Assets.

D. (current assets minus Inventory) by Current liabilities.

Answer 1

The liquidity Quick Ratio is calculated by dividing (Current Assets - Inventories)/ Current Liabilities. This provides a better measure of liquidity as it does not takes into account the inventories as a resource that will be almost immediately ready to pay current liabilities.