Selected data from the financial statements are provided below:

-Refer to Rainsoft Company. Which of the following statements is true regarding the company's liquidity?
A)Based on the current ratio and operating cash flow ratio, the company appears to be in a worse position to pay its current obligations at the end of 2021 compared to 2020.
B)The quick ratio decreased from 2020 to 2021.
C)The operating cash flow ratio increased from 2020 to 2021.
D)Based on the quick ratio and cash ratio, the company appears to be in a better position to pay its current obligations at the end of 2021 compared to 2020.

Question

Selected data from the financial statements are provided below:
 
-Refer to Rainsoft Company. Which of the following statements is true regarding the company's liquidity?
A)Based on the current ratio and operating cash flow ratio, the company appears to be in a worse position to pay its current obligations at the end of 2021 compared to 2020. 
B)The quick ratio decreased from 2020 to 2021. 
C)The operating cash flow ratio increased from 2020 to 2021. 
D)Based on the quick ratio and cash ratio, the company appears to be in a better position to pay its current obligations at the end of 2021 compared to 2020.

Quizplus · Accepted Answer

The quick ratio and cash ratio increased from 2020 to 2021, which indicates that the company has a better ability to pay its current obligations at the end of 2021 compared to 2020. However, the current ratio decreased and the operating cash flow ratio is lower in 2021, which may indicate a potential liquidity issue.

Selected Data from the Financial Statements Are Provided Below