An analyst has gathered the following information about a firm: Quick ratio of 0.25. Cash ratio of 0.20. $2 million in marketable securities. $10 million in cash. What is their receivables balance? A) 5 million. B) 2 million. C) 3 million.
Answer is C Cash Ratio = (Cash + Mktable Sec)/Current Liabilities 0.2 = (10+2)/CL Hence, CL = 60 million Quick Ratio = (Cash + Mktable Sec + Recievables)/CL 0.25 = (10+2+R)/60 We get Recievables = 3 miilion THe ratios itself shows the company has Liquidity Concerns in the short terms and would have diffculty in meeting its short terms payments The ratios should ideally be greater than 1
The portion of receivables is 0.05 in 0.25 which is equal to 1/4 of the cash + securities. So (2+10)/4= 3millions
manowar, I did not get your explantion, can u pls elaborate a bit?
60/4=15 12+X=15 X=3