Martin Company has a cash ratio of 0.3.This implies that the company ________.
A) has an unnecessarily large amount of cash supply
B) is not sending a strong message to investors and creditors that it has the ability to repay its short-term debt
C) is not in a position to meet its long-term obligations
D) has no liquidity issues

Question

Quizplus · Accepted Answer

A cash ratio of 0.3 means that Martin Company has only 30 cents of cash for every dollar of short-term debt. This implies that the company may have difficulty in repaying its short-term debt obligations. A high cash ratio can imply that a company is hoarding cash unnecessarily, but a low ratio indicates that it may not have enough cash to meet its obligations. Therefore, Martin Company needs to improve its liquidity position or increase its cash reserves to be able to meet its short-term debt obligations.

Martin Company Has a Cash Ratio of 0