How would the current and quick ratios of a service business compare?

Answered: How would the current and quick ratios…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 4DQ

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How would the current and quick ratios of a service business compare?

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Summary Introduction:

Ratio analysis is used to evaluate management performance in profitability, efficiency and risk. It is a form of financial statement analysis. It is used to project future performance. Liquidity ratio like current ratio, cash ratio and quick ratio measures how liquid a company’s assets are compared to its liabilities. Turnover ratio helps to understand how long it will take to convert receivables and inventory to cash and pay its suppliers. Ratio analysis when used to compare a firm’s performance over the years and with its peer companies helps to identify strengths and weaknesses of the company.

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