Final answer:
The quick ratio of Free Spirit Industries Corporation is 2.25, which means the company has $2.25 of liquid assets for every dollar of current liabilities.
Step-by-step explanation:
The quick ratio of a company is a measure of its ability to pay off short-term liabilities using its most liquid current assets. It is calculated by dividing the sum of cash, accounts receivable, and short-term investments by current liabilities. The quick ratio helps assess the company's financial health and its ability to meet immediate obligations without relying on inventory sales.
In the case of Free Spirit Industries Corporation, you will need to gather the company's financial statements or annual report to find the values for cash, accounts receivable, short-term investments, and current liabilities. Once you have those values, you can use the quick ratio formula to calculate it.
Let's say the company has $50,000 in cash, $100,000 in accounts receivable, $30,000 in short-term investments, and $80,000 in current liabilities. The quick ratio would be calculated as follows:
- Gather the values for cash, accounts receivable, short-term investments, and current liabilities.
- Add the values of cash, accounts receivable, and short-term investments. In this case, it would be $50,000 + $100,000 + $30,000 = $180,000
- Divide the sum of cash, accounts receivable, and short-term investments by current liabilities. In this case, it would be $180,000 / $80,000 = 2.25
Therefore, the quick ratio of Free Spirit Industries Corporation would be 2.25. This means that for every dollar of current liabilities, the company has $2.25 of liquid assets to cover them. A quick ratio above 1 indicates a good ability to meet short-term obligations.