Which of the following actions will increase a company's quick ratio?
A) Reduce inventories and use the proceeds to reduce long-term debt.
B) Reduce inventories and use the proceeds to reduce current liabilities.
C) Issue short-term debt and use the proceeds to purchase inventory.
D) Issue long-term debt and use the proceeds to purchase fixed assets.
E) Issue equity and use the proceeds to purchase inventory.

Question

Quizplus · Accepted Answer

The quick ratio is a measure of a company's ability to meet its short-term obligations with its most liquid assets. It is calculated by dividing the sum of cash, accounts receivable, and short-term investments by current liabilities. By reducing inventories, a company can increase its quick assets (cash, accounts receivable, and short-term investments), which will increase the quick ratio. Using the proceeds to reduce current liabilities will further increase the ratio because current liabilities are in the denominator of the quick ratio equation. None of the other actions listed will increase the quick ratio.

Which of the Following Actions Will Increase a Company's Quick