Why Might a Firm Use the Quick Ratio Instead of the Current

question 139

Multiple Choice

Why might a firm use the quick ratio instead of the current ratio in its liquidity analysis?

• A)It wants to target long-term debt instead of short term debt.
• B)Its accounts receivable are greater than its cash.
• C)Its inventory is not very liquid.
• D)It considers the cash flow amount in the quick ratio more important than the other liquidity ratios.
• E)Its notes receivable are greater than its cash.

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Definitions:

Leverage Ratio

A financial ratio that measures the amount of debt used in a company's financing structure relative to its equity or other assets.

Pretax Profit/EBIT

Earnings before interest and taxes, a measure of a company's profitability that excludes interest and income tax expenses.

Asset Turnover Ratio

A financial metric that measures the efficiency of a company's use of its assets in generating sales revenue.

Current Ratio

A liquidity measure that compares a company's current assets to its current liabilities.