Last Year,a Firm Had a Current Ratio of 2

question 21

Multiple Choice

Last year,a firm had a current ratio of 2.0 and an acid-test ratio of 1.0.This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5.This firm's _____ has _____.

• A)profitability;improved
• B)profitability;deteriorated
• C)liquidity;improved
• D)liquidity;deteriorated

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Definitions:

Break-Even Point

The point at which total costs equal total revenue, meaning there is no profit or loss.

Total Sales

The aggregate revenue a company generates from selling goods or services within a specified period.

Fixed Costs

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

Margin Of Safety

The difference between actual or expected sales and the break-even point, indicating the level of risk in failing to cover fixed costs.