Edexcel Business Unit 2, Topic 3 Test

Liquidity is ...

• the ease with which assets can be counted as current

• the ease with which assets can be converted into cash

• the ratio of conversion from fixed assets to cash

• assets that will be converted into cash within 1 year

Which is/are true about working capital?

• Inventories are costly to keep

• If a business has too much trade receivables, it won't be able to pay due invoices

• Cash is very unlikely to be earning very high rates of interest

• Having cash as much as possible would be safer for the business

What are the measures of liquidity?

• Non-current ratio

• Current ratio

• Asset test ratio

• Acid test ratio

Current ratio gives an idea whether the business would be able to ...

• repay its liabilities with its assets

• liquify its assets to pay long-term debts

• repay receivables with its current assets

• sustain the business for the next 2 years

Current ratio is calculated by ...

• current liabilities : current assets

• (current assets - inventory) : current liabilities

• current assets : current liabilities

• (current liabilities - current assets) : inventory

(Use Extract A to answer this question)
Current ratio of Anzuge von Nicolaus is ...

• 0.67 : 1

• 0.08 : 1

• 0.97 : 1

• 1.03 : 1

Acid test ratio is calculated by ...

• (current assets - inventory) : current liabilities

• current assets : current liabilities

• (current liabilities - inventory) : current assets

• (current assets - current liabilities) : inventory

(Use Extract A to answer this question)
Acid Test ratio of AvN is ...

• 0.97 : 1

• 0.67 : 1

• 1.03 : 1

• 0.08 : 1

Ideally, the current ratio would be between ...

• 1:1 and 1.5:1

• 1.5:1 and 2:1

• 2:1 and 2.5:1

• 2.5:1 and 3:1

Ideally, the acid test ratio should be ...

• above 1:1

• below 1:1

• at or above 1:1

• at or below 1:1