ch3 mod 3

acid test ratio =

(cash + accounts receivable) / current liabilities

the lowest acceptable ratio for current ratio

1. this means assets = current liabilities

working capital =

current assets - current liabilities

current ratio =

current assets / current liabilities

the acid test ratio does not include what in the numerator

inventory and supplies

acid test ratio provides information about what

the firms ability to meet its current obligations even if none of the inventory can be sold

if a company has a working capital that is negative what does this mean about the current and acid test ratio

the ratio is less than 1 and current liabilities are larger than current assets

liquidity ratios measure

the short term ability of the company to pay its debts as they come due

3 liquidity ratios

working capital, current ratio, acid-test ratio