Answered: If either of the liquidity ratios is…

If either of the liquidity ratios is less than that of the industry as a whole, does that mean that liquidity is a problem?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 18DQ

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What caused the increase in liquidity ratios??
Which of the following is not likely to be used to measure a company's liquidity? a) Financial leverage b) Working capital c) Current ratio d) Acid-test (quick) ratio
What is the stuitable strategy to do for, Operating cash does not cover debt, PE Ratio, EPS Ratio, and ROE cannot be calculated because of its unprofitability, andDebt to equity ratio is higher than accepted percentage?
Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio? A) The quick ratio more accurately reflects a firm's profitability. B) It leaves out the least liquid current asset from the numerator of the ratio. C) The current ratio does not include accounts receivable. D) It measures how "quickly" cash flows through the firm.
What does liquidity measure? Explain the trade-Off a firm faces between high-liquidity and low-liquidity levels. Provide an example. Use your own words.
Why is a high quick ratio not always a good indication of a well-managed liquidity position?
Which of the following is true about the quick ratio? a. The quick ratio is calculated by dividing the least liquid of current assets by current liabilities. b. Quick ratios will tend to be much larger than current ratio for manufacturing firms or other industries that have a lot of inventory. c. Inventory, being not very liquid, is subtracted from total current assets to determine the most liquid assets. d. Service firms that tend not to carry too much inventory will see significantly higher quick ratios than current ratios.
why is there a trade-off between liquidity and solvency?
Based on the Liquidity ratio, which ratio determine stability, earning power and capital? Explain the formula and its impact & importance. Choose one only.
Which of the following usually is least important as ameasure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
Based on these calculations, which company appears to be more risky and which company appears to be more profitable? How can you tell? (Keep in mind that the current ratio and debt to equity ratio are "risk ratios" and the gross profit ratio and return on equity ratio are "profitability ratios").
What do the Liquidity ratios show?