Liquidity Ratios

State the following statement is True or False.

Ratios help in comparisons of a firm’s results over a number of accounting periods as well as with other business enterprises.

• True

• False

The _________ of business firm is measured by its ability to satisfy its short term obligations as they become due:

• Activity

• Liquidity

• profitability

• Solvency

The two basic measures of liquidity are:

• inventory turnover and current ratio

• current ratio and acid test ratio

• gross profit Ratio and operating ratio

• current ratio and average collection period

The _________ is a measure of liquidity which excludes _______, generally the least liquid asset:

• Current ratio, trade receivable

• Liquid ratio, trade receivable

• Current ratio, inventory

• acid test ratio, inventory

A Business Has The Following:

Fixed Assets = £6000

Current Assets = £2000

Inventory = £1000

Current Liabilities = £500

Calculate It's Current Ratio

• 1 : 4

• 1 : 5

• 1 : 2

• 1 : 3

• 1 : 6

A Business Has The Following:

Fixed Assets = £6000

Current Assets = £2000

Inventory = £1000

Current Liabilities = £500

Calculate It's Liquid Capital Ratio

• 1 : 2

• 1 : 12

• 1 : 4

• 1 : 12.5

• 1 : 8

A Business Has The Following:

Fixed Assets = £20,000

Current Assets = £4,620

Inventory = £3,321

Current Liabilities = £2,000

Calculate It's Liquid Capital Ratio

• 1 : 0.64

• 1 : 0.65

• 1 : 0.63

• 1 : 0.66

• 1 : 0.62

A Business Has The Following:

Fixed Assets = £20,000

Current Assets = £4,620

Inventory = £3,321

Current Liabilities = £2,000

Calculate It's Current Ratio

• 1 : 2.31

• 1 : 2.32

• 1 : 2.30

• 1 : 2.33

• 1 : 2.34

A Business Has The Following:

Fixed Assets = £12,050

Current Assets = £13,500

Inventory = £6,040

Current Liabilities = £7,000

Calculate It's Current Ratio

• 1 : 1.93

• 1 : 1.94

• 1 : 1.92

• 1 : 1.91

• 1 : 1.90

If a business has a current ratio of 0.8 : 1 what does this mean?

• They will be able to pay off their current liabilities with their current assets

• They will not be able to pay off their current liabilities with their current assets