What is the Quick Ratio when a company has current assets of $30,000, total assets of $140,000, inventory of $10,000, and current liabilities of $20,000?

What is the Quick Ratio when a company has current assets of $30,000, total assets of $140,000, inventory of $10,000, and current liabilities of $20,000?

• A. 5.0
• B. 0.5
• C. 1.0
• D. 2.0

Answer: (C)

To determine the Quick Ratio, the formula used is: \[ \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}. \] In this scenario, the company has current assets of $30,000, inventory of $10,000, and current liabilities of $20,000. First, we need to calculate the quick assets by subtracting the inventory from the current assets: \[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} = 30,000 - 10,000 = 20,000. \] Next, we can plug this value into the Quick Ratio formula: \[ \text{Quick Ratio} = \frac{20,000}{20,000} = 1.0. \] A Quick Ratio of 1.0 indicates that the company has enough liquid assets to cover its current liabilities. This ratio is crucial for assessing a company's short-term financial health and its ability to meet obligations without relying on inventory, which may not be as readily convertible to cash. This ratio is particularly relevant in the construction industry, where a builder's ability to manage cash flow and meet financial obligations

To determine the Quick Ratio, the formula used is:

[ \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}. ]

In this scenario, the company has current assets of $30,000, inventory of $10,000, and current liabilities of $20,000.

First, we need to calculate the quick assets by subtracting the inventory from the current assets:

[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} = 30,000 - 10,000 = 20,000. ]

Next, we can plug this value into the Quick Ratio formula:

[ \text{Quick Ratio} = \frac{20,000}{20,000} = 1.0. ]

A Quick Ratio of 1.0 indicates that the company has enough liquid assets to cover its current liabilities. This ratio is crucial for assessing a company's short-term financial health and its ability to meet obligations without relying on inventory, which may not be as readily convertible to cash.

This ratio is particularly relevant in the construction industry, where a builder's ability to manage cash flow and meet financial obligations