Your firm has cash of $3,800, accounts receivable of $9,600, inventory of $33,100, and net working capital of $1,100. What is the cash ratio?
A) 0.04
B) 0.08
C) 0.87
D) 1.21
E) 3.45

Question

Quizplus · Accepted Answer

The cash ratio is calculated as cash divided by current liabilities. First, calculate current liabilities using net working capital: Current Assets = Cash + Accounts Receivable + Inventory = $3,800 + $9,600 + $33,100 = $46,500. Net Working Capital = Current Assets - Current Liabilities = $1,100. Therefore, Current Liabilities = Current Assets - Net Working Capital = $46,500 - $1,100 = $45,400. Cash Ratio = Cash / Current Liabilities = $3,800 / $45,400 = 0.08.

Your Firm Has Cash of $3,800, Accounts Receivable of $9,600