Question

URI Inc. has net working capital of $1370, current liabilities of $3720, net income of $400, interest of $50, and inventory of $1950. What is the quick ratio?

Answer 1

The quick ratio is undefined in this scenario.

Step-by-step explanation:

The quick ratio, also known as the acid-test ratio, measures a company's ability to pay off its short-term liabilities using its quick assets. Quick assets include cash, marketable securities, and accounts receivable. To calculate the quick ratio, divide the quick assets by the current liabilities.

In this case, the quick assets can be calculated by subtracting the inventory from the net working capital: $1370 - $1950 = -$580. Since the quick assets are negative, the quick ratio cannot be calculated.

Therefore, the quick ratio is undefined in this scenario.