Question

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

a. The TIE declines.
b. The DSO increases.
c. The quick ratio increases.
d. The current ratio declines.
e. The total assets turnover decreases.

Answer 1

c. The quick ratio increases.

Step-by-step explanation:

The quick ratio is also known as the acid test ratio. It a measure of a company's ability to settle its current liabilities are they mature. The quick ratio is, therefore, a liquidity ratio. It indicates a firm's ability to generate currents assets needed to pay the current liability. A liquid firm is financially healthy as it can generate sufficient cash and cash equivalents to meet its obligations.

The quick ratio is obtained by dividing quick assets by current liabilities. A quick ratio of 1 or more is preferred. An increase in quick ratio indicates that the company's assets are increasing more than its liabilities.