Accounting Ratios · Class 12 · CBSE · Commerce Accountancy
What does a Quick Ratio of 0.8:1 indicate about a firm?
Practice question from Accounting Ratios (Class 12 · CBSE · Commerce Accountancy), with the correct answer and a step-by-step solution.
easy · MCQ · Q-73726A
What does a Quick Ratio of 0.8:1 indicate about a firm?
- A.The firm has sound short-term financial stability.
- B.The firm's liquid assets are less than its current liabilities.Correct answer
- C.The firm has excessive inventory.
- D.The firm's current assets are double its current liabilities.
Solution
The Quick Ratio (or Acid-Test Ratio) measures the ability of a company to use its near-cash or quick assets to immediately pay off its current liabilities. A standard ideal quick ratio is 1:1. A ratio of 0.8:1 means quick assets are only Rs. 0.80 for every Re. 1 of current liabilities, indicating that liquid assets are insufficient to cover current liabilities immediately.
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