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Sen END OF SECTRON Ratio At the Alms Games cerca questions aments firms current lancial situation using trend analysis fow
(2 marks) Why there is a difference between the interpretation of current ratio and quick ratio d. Recommend what company sho
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Answer #1

Current Ratio = 1.5

Quick Ratio = 1.4

Current Ratio Formula = Current Assets / Current Liabilities

Quick Ratio Formula = Quick Assets / Current Liabilities

Quick Assets = Cash and Cash Equivalents + Current Receivables + Short Term Investments

1) If the current and quick ratio are favorable or unfavorable.

As both the ratios are above one it's a favorable ratio for the company as company has more assets than the liabilities.

2) Current and Quick ratio measure the company’s financial health and liquidity position in short term. It defines company’s ability to pay off debts.

3) Quick ratio is more conservative and liquid in nature, it signify short term ability to meet immediate obligations with short-term assets so it only consider highly liquid assets and exclude inventory and other current assets which might be comparatively less liquidate.

4) There are many ways to improve current and quick ratios, find it below.

  1. Converting ideal cash into cash equivalents to generate interest income
  2. Investing ideal funds to short term debts to generate interest income
  3. Paying off current liabilities
  4. Financing through long term debts rather short team funding

Hope you like the answers.

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