Financial Reporting and Analysis Q206
0. The current ratio for XYZ industry is 3.00. Data for a firm in XYZ industry is presented below:
| As at June 30 | $‘000s |
| Cash | 800 |
| Accounts receivable | 700 |
| Inventory | 2,500 |
| Accounts payable | 500 |
| Taxes payable | 300 |
| Installment loan payable,due in two equal annual payments on Dec 31 | 800 |
The firm’s current ratio relative to that of the industry is best described as being:
- Option : C
- Explanation : Current ratio = Current assets / Current liabilities The higher the current ratio, the more liquid the company. Thus, with a current ratio of 3.33 (4,000 ÷ 1,200), the company is more liquid than the industry, with a current ratio of 3.00.
