Question

1. You are considering buying a bond from a company that has a quick ratio of 0.45. This means that:

A. the company has 45% of its total assets in the current category.
B. the company does not have the ability to pay off all the debt it owes with all the assets it owns.
C. the company does not have the ability to pay off all the debt that is due in the near future with assets that are available in the near future.
D. stockholders currently own 45% of the company's assets.

Answer 1

The quick ratio of 0.45 indicates that the company might not be able to cover its short-term liabilities with its most liquid assets, as it only has 45% of the necessary amount.

Step-by-step explanation:

When considering the purchase of a bond from a company with a quick ratio of 0.45, it indicates option C: the company does not have the ability to pay off all the debt that is due in the near future with assets that are available in the near future. The quick ratio, also known as the acid-test ratio, is a measure of a company's liquidity and its ability to meet its short-term obligations with its most liquid assets. If the quick ratio is less than 1, the company may not be able to fully cover its short-term liabilities. Thus, a ratio of 0.45 signifies that the company's most liquid assets amount to only 45% of its short-term liabilities.