Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

Question

Quizplus · Accepted Answer

A higher inventory turnover ratio indicates that Firm A is selling its inventory more quickly than Firm B. Since the quick ratio excludes inventory from current assets, Firm A's more efficient inventory management does not directly affect its quick ratio compared to Firm B's, especially given the same current liabilities and current ratio. The quick ratio depends on liquid assets other than inventory, which are not specified to differ between the firms.

Firms a and B Have the Same Current Ratio, 0