Question

Humphries has cash of 10,000, accounts receivable of2,500, accounts payable of 900, and inventory of1,200. What is the value of the quick ratio?

Answer 1

The quick ratio for Humphries is 13.89, calculated by adding cash and accounts receivable, then dividing by the accounts payable.

Step-by-step explanation:

The quick ratio is a financial metric used to evaluate a company's ability to meet its short-term liabilities with its most liquid assets. It is calculated by subtracting inventory from current assets and then dividing by current liabilities.

In the case of Humphries, we calculate the quick ratio by taking the sum of cash ($10,000) and accounts receivable ($2,500) and then dividing by accounts payable ($900). Inventory is not included in the quick ratio because it is not considered a liquid asset. Therefore, the quick ratio calculation would be:

Quick Ratio = (Cash + Accounts Receivable) / Accounts Payable
Quick Ratio = ($10,000 + $2,500) / $900
Quick Ratio = $12,500 / $900
Quick Ratio = 13.89

Hence, the value of the quick ratio for Humphries is 13.89.