The Current Ratio Provides a Better Measure of Overall Liquidity

question 94

True/False

The current ratio provides a better measure of overall liquidity only when a firm's inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity.

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Definitions:

Safety Stock

An additional quantity of an item held in inventory in order to reduce the risk that the item will be out of stock.

Standard Deviation

A statistic that measures the dispersion or variability of a dataset relative to its mean, indicating how spread out the data points are.

Lead Time

The total amount of time it takes from the initiation of a process or order until it's completed, influencing inventory levels and customer satisfaction.