A business has current assets of KSh 270,000 (including inventory of KSh 60,000) and current liabilities of KSh 90,000. What is its quick (acid test) ratio?
Answer and explanation
Correct answer: A. 2.33 : 1
- Step 1: Quick assets = current assets - inventory = 270,000 - 60,000 = 210,000. Step 2. Quick ratio = 210,000 / 90,000 = 2.33 : 1. Answer: 2.33 : 1. Why not the others: 3 : 1: That is the current ratio, which includes inventory. 0.43 : 1: That turns the ratio upside down. 0.67 : 1: That is inventory divided by current liabilities.
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