Calculate the Current Ratio and the Acid-Test Ratio

question 20

Multiple Choice

Calculate the current ratio and the acid-test ratio. Is the company healthy based on the guidelines given in the text?
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• A)Current ratio = 1.31 which is too low Acid-test ratio = 1.67 which is fine
• B)Current ratio = 0.78 which is too low Acid-test ratio = 1.31 which is too low
• C)Current ratio = 1.67 which is too low Acid-test ratio = 0.78 which is too low
• D)Current ratio = 1.31 which is too low Acid-test ratio = 0.78 which is too low

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Definitions:

Expected Return

The average of all possible returns from an investment, weighted by their respective probabilities.

Cyclical Stock

Stocks whose prices are affected by macroeconomic changes in the economy.

Countercyclical Stock

Shares of companies that tend to perform well during economic downturns because they offer goods or services that remain in demand.

Portfolio Weight

The percentage composition of a particular holding or investment relative to the total value of the portfolio.