ASSIGNMENT liquidity ratios

3-2 QUESTIONS       liquidity ratios

The 3-1 Image is a Balance Sheet with numbers

As shown in figure 3-1, MicroDrive has current liabilities of 780 million that it must pay off within the coming year. Will it have trouble satisfying those obligations? Liquidity Ratios attempt to answer this type of question. We discuss two commonly used liquidity ratios in this section

3-2a the current Ratio

Calculate the current ratio by dividing current assets by current liabilities:

=   CURRENT ASSETS =2.0

750

Industry average =2.2

3-2b the quick, or acid Test,Ration

The quick ratio, also called the acid test Ratio, is calculated by deducting inventories from current assets and dividing the remainder by current liabilities:

             Current assets – Inventories

Quick ratio=   ______________________

Current liabilities

$1,550--$1,000 = 7-0

$780

Industry average =0.8