Question

Which of the following is not true about the quick ratio

It is best used in conjunction with other ratios when assessing a supplier's financial health

It's the same as current ration except that inventory is subtracted from current assets because inventory is converted to cash

Higher quick ratios are preferred to lower quick ratios

It is the ratio of a supplier's agility which is also known as how quick a firm is in processing orders

A firm's quick ratio can better be understood when compare to an industry competitor

Answer 1

Answer:

The statement which are not trues are ticked:

It is best used in conjunction with other ratios when assessing a supplier's financial health It's the same as current ratio except that inventory is subtracted from current assets because inventory is converted to cash Higher quick ratios are preferred to lower quick ratio It is the ratio of a supplier's agility which is also known as how quick a firm is in processing orders A firm's quick ratio can better be understood when compare to an industry competitor

Explanation:

Statement A is true. Financial healthe of a company are assessed by Profitability ratios, Asset Management ratios, Liquidity ratios, Leverage and market value ratios. Quick ratio is a liquidity ratio. Hence it is true that it is best used in conjunction with other ratios when assessing a supplier's financial health.

Statement B is not true. Although it is true that it is the same as current ratio except that inventory is subtracted from current assets but the reason "because inventory is converted to cash" is not true. Inventory is not as liquid as other current assets; hence it is excluded.

Statement C is true. Higher the quick ratios are preferred. When we say higher it should be within range. Too high quick ratio may indicate idele cash.

Statement D is not true. Quick ratio does not factor in inventory. As such the statement "it is the ratio of a supplier's agility which is also known as how quick a firm is in processing orders" is not true.

Statement E is true. A firm's quick ratio can better be understood when compare to an industry competitor. Quick ratio may vary industry to industry.