Answered

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Even though Firm A's current ratio exceeds that of Firm B, Firm B's quick ratio might exceed that of A. However, if A's quick ratio exceeds B's, then we can be certain that A's current ratio is also larger than that of B. True False

Sagot :

Parrain

Answer: False

Explanation:

If Firm A's current ratio exceeds that of Firm B, it is still possible that B's quick ratio is larger than A's. If A's quick ratio is larger than B's however, then there is still a possibility that B's current ratio can be larger than A's.

The current ratio is the Current Assets divided by Current liabilities. The Quick ratio is Current Assets less inventory divided by Current liabilities.

B's current ratio can therefor be larger than A's if it has more inventory than A such that when we calculate the current ratio of B, the extra inventory would give it a higher current ratio than A.

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