A Firm's Current Ratio Is Above the Industry Average; However

question 41

Multiple Choice

A firm's current ratio is above the industry average; however, the firm's quick ratio is below the industry average.These ratios suggest that the firm

• A)has relatively more total current assets and even more inventory than other firms in the industry.
• B)is very efficient at managing inventories.
• C)has liquidity that is superior to the average firm in the industry.
• D)is near technical insolvency.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific good or service.

Incremental Revenues

Additional revenue that a company generates from selling more units of its products or services.

Special Order

A request for a product or service that is not part of a company’s standard offering, often requiring customization or special handling.

Opportunity Cost

The potential benefits an individual, investor, or business misses out on when choosing one alternative over another.