Calculate the current ratio and the acid-test ratio. Is the company healthy based on the guidelines given in the text?
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A)Current ratio = 2.24 which is fine Acid-test ratio = 0.25 which is very low
B)Current ratio = 2.24 which is fine Acid-test ratio = 8.89 which is fine
C)Current ratio = 0.25 which is very low Acid-test ratio = 2.24 which is fine
D)Current ratio = 8.89 which is fine Acid-test ratio = 0.25 which is very low

Question

Calculate the current ratio and the acid-test ratio. Is the company healthy based on the guidelines given in the text?
-
A)Current ratio = 2.24 which is fine Acid-test ratio = 0.25 which is very low 
B)Current ratio = 2.24 which is fine Acid-test ratio = 8.89 which is fine 
C)Current ratio = 0.25 which is very low Acid-test ratio = 2.24 which is fine 
D)Current ratio = 8.89 which is fine Acid-test ratio = 0.25 which is very low

Quizplus · Accepted Answer

The current ratio of 2.24 indicates that the company has more than enough current assets to meet its current liabilities. However, the acid-test ratio of 0.25 is very low and suggests that the company may have difficulty meeting its short-term obligations with its most liquid assets. Overall, the company may not be considered healthy based on its acid-test ratio.

Calculate the Current Ratio and the Acid-Test Ratio