Which of the Following Is the Correct Formula for Calculating

question 4

Multiple Choice

Which of the following is the correct formula for calculating the cash ratio?

• A)Cash ratio = (Cash + Bank)÷ Total liabilities
• B)Cash ratio = (Cash + Cash equivalents)÷ Total current liabilities
• C)Cash ratio = (Cash + Cash equivalents)÷ Total assets
• D)Cash ratio = (Bank + Cash equivalents)÷ Total current liabilities

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Definitions:

Economic Profits

Profits exceeding the opportunity costs of a next best alternative, measuring the extent to which a firm has generated excess returns over its costs, including the cost of capital.

Cost of Capital

The rate of return a company must earn on its investments to maintain its market value and attract funds.

Break-Even Quantity

The number of units that must be sold to cover all fixed and variable costs, resulting in neither profit nor loss.

Break-Even Quantity

The number of units that must be sold for total revenues to equal total costs, resulting in no profit or loss.