Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory? a. Current ratio b. Profit margin c. Debt to equity d. Quick ratio
Question
Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory?
a. Current ratio
b. Profit margin
c. Debt to equity
d. Quick ratio
Solution
The ratio that helps to indicate whether current liabilities could be paid without having to sell the inventory is the Quick ratio (d). The Quick ratio, also known as the Acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory from current assets because inventory may not be easily convertible to cash.
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