Question

A company has $50,000 in cash, $85,000 in short-term investments, $120,000 in net current receivables, and $145,000 in inventory. The total current liabilities of the firm are $275,000. The acid-test ratio of the company is:

a) 0.93
b) 1.76
c) 0.64
d) 1.45

Answer 1

The acid-test ratio of the company is 0.93.

Step-by-step explanation:

The acid-test ratio of a company is calculated by adding up its cash, short-term investments, and net current receivables, and then dividing that sum by the total current liabilities.

The acid-test ratio is a measure of a company's ability to pay off its current liabilities using only its most liquid assets. In this case, the company has $50,000 in cash, $85,000 in short-term investments, and $120,000 in net current receivables, which adds up to $255,000. Dividing this by the total current liabilities of $275,000 will give us the acid-test ratio:

Acid-test ratio = ($50,000 + $85,000 + $120,000) / $275,000 = 0.93

Therefore, the acid-test ratio of the company is 0.93, which is option a).