Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?A)The quick ratio more accurately reflects a firm's profitability.B)It leaves out the least liquid current asset from the numerator of the ratio.C)The current ratio does not include accounts receivable.D)It measures how "quickly" cash flows through the firm.

The quick ratio examines a company's short-term liquidity position and assesses its ability to meet…

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Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 19DQ

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Which of the following statements about the current ratio is FALSE? A. The higher the current ratio, the higher the level of cash must be for the firm. B. This ratio is a meaningful measure of liquidity because the book value of the assets and liabilities used in the calculation tend to deviate only slightly from market values. C. It will always be greater than the quick ratio in companies that carry inventory. D. This ratio is intended to indicate the short-run liquidity position of the firm. E. This ratio is calculated by dividing current assets by current liabilities.
All the statements are incorrect regarding current ratio except? a. The more predictable a firm's cash flows, the higher the acceptable current ratio. b. A higher current ratio indicates a higher return on equity. c. The more predictable a firm's current ratio, the higher the clyrent liabilities. d. A higher current ratio indicates a greater degree of liquidity.
True or False A ratio that can be useful in analyzing a company's cash and liquidity is the operating cash flow ratio.
Which one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.
Which of the following provides the best description of the liquidity ratios? Current ratio is the strictest test for a firm's liquidity position. If Firm A has higher values of all liquidity ratios than Firm B, and both firms are in the similar industry, then Firm A is managing its liquidity better than Firm B. The quick ratio regards inventory as part of the current assets because it's more liquid than other types of current assets. Cash ratio between 0 and 0.5 is considered a safe range for a firm's liquidity. 00
Which of the following usually is least important as ameasure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance? True or false, investors and management use the statement of cash flows to evaluate a firm's profitability? True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans?
Indicate whether the following are true or false. Financial statement analysis is used by insiders and outsiders to identify strengths and weaknesses. Time series analysis compares one firm to another. If you want to determine the gross profit earned on each dollar of sales, use the operating profit margin ratio. The earnings per share ratio is used to predict the amount of cash dividends. Discounted cash flow values an asset based on the future value of cash flows associated with that asset
What is the stuitable strategy to do for, Operating cash does not cover debt, PE Ratio, EPS Ratio, and ROE cannot be calculated because of its unprofitability, andDebt to equity ratio is higher than accepted percentage?
Is it possible for a company to have significant net income in the same time period that net cash flows are negative? Explain.
Liquidity is the ability of a company to meet its needs for cash in the short and long term. True False
Select all of the following that will have a negative effect on the firm's cash flows? (Assume other variables remain constant, no change in revenues, etc.) O Increase in Inventory Decrease in Accounts Payable Increase in Accounts Receivable Increase in Working Capital Decrease in Accounts Receivable Decrease in Inventory Increase in Accounts Payable

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A)	The quick ratio more accurately reflects a firm's profitability.
B)	It leaves out the least liquid current asset from the numerator of the ratio.
C)	The current ratio does not include accounts receivable.
D)	It measures how "quickly" cash flows through the firm.