The Wood Shed has cash of $5,800,accounts receivable of $18,600,inventory of $53,100,and net working capital of $2,100.What is the cash ratio?
A).11
B).08
C).26
D).21
E).45

Question

Quizplus · Accepted Answer

The cash ratio is calculated by dividing cash by current liabilities. However, current liabilities are not given in the problem. Therefore, we cannot calculate the cash ratio accurately. However, we can use net working capital as an approximation to current liabilities. 
Cash Ratio = Cash / Current Liabilities 
≈ Cash / Net Working Capital 
≈ $5,800 / $2,100 
≈ 2.76 
The closest answer choice to this value is B, 0.8. However, this is still not an accurate calculation and we cannot confidently choose any answer choice.

The Wood Shed Has Cash of $5,800,accounts Receivable of $18,600,inventory