The following data are available on a company:
| Current Year | (¥ millions) |
|---|---|
| Cash | 114 |
| Inventory | 462 |
| Marketable securities (at fair value) | 23 |
| Property, plant, and equipment (net) | 677 |
| Receivables | 231 |
| Current liabilities | 390 |
| Liquidity Ratios in Prior Year | |
| Cash ratio | 0.37 |
| Current ratio | 2.19 |
| Quick ratio | 0.97 |
The value of the company’s liquidity ratio that decreased the most in the current year, compared with the prior year, is the:
- cash ratio.
- quick ratio.
- current ratio.
Solution
C is correct.
| Current Ratio | Cash Ratio | Quick Ratio | |
|---|---|---|---|
| Numerator | Current assets = Cash + Marketable securities + Receivables + Inventory | Cash + Marketable securities | Cash + Marketable securities + Receivables |
| Denominator | Current liabilities | Current liabilities | Current liabilities |
| Current year | |||
| Numerator | 114 + 23 + 231 + 462 = 830 | 114 + 23 = 137 | 114 + 23 + 231 = 368 |
| Denominator | 390 | 390 | 390 |
| Ratio: Current year | 2.13 | 0.35 | 0.94 |
| Ratio: Prior year | 2.19 | 0.37 | 0.97 |
| Change in ratio | −0.06 | −0.02 | −0.03 |
This is a question with its answer i think it is not true he deal with the problem using the absolute so he select the ratio which decline the max difference not the percentage the cash ratio fall 5% and this is the max percentage it should be the answer