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