154k views
0 votes
The current and quick ratios help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the quick ratio measures the firm’s ability to pay off short-term obligations without relying on the sale of inventories. True or False?

1 Answer

3 votes

Answer:

True

Step-by-step explanation:

Current Ratio: The current ratio shows a relationship between the current assets and the current liabilities. The formula is shown below:

Current ratio = (Total Current assets ÷ total current liabilities )

Quick Ratio: The quick ratio shows a relationship between the quick assets and the current liabilities. The formula is shown below:

Current ratio = (Quick assets ÷ total current liabilities)

where,

Quick assets = Current assets - inventories - prepaid insurance

So, the given statement is true

User Trevor Abell
by
8.4k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.