Liquidity problems exist for a company when its quick ratio:
A)Is less than the industry average.
B)Is higher than 1 to 1.
C)Is 1 to 1.
D)Is lower than 1 to 1.
E)Is less than the industry average and is lower than 1 to 1.

Question

Quizplus · Accepted Answer

A quick ratio below 1 to 1 indicates that the company may have difficulty meeting its short-term obligations with its current assets. This is a sign of liquidity problems. The industry average is not as relevant in this context, as a company may have unique factors that affect its liquidity. A quick ratio higher than 1 to 1 may indicate that the company is holding excess assets that could be invested elsewhere, but it does not necessarily indicate liquidity problems.

Liquidity Problems Exist for a Company When Its Quick Ratio