Two companies have an identical amount of current assets and current liabilities. Donald Inc. has 40% of its current assets invested in inventory, whereas Mickey Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?
A) Donald will have the higher quick ratio.
B) Donald will have the higher current ratio.
C) The companies are equally liquid because their current ratios are the same.
D) Donald is less liquid than Mickey.

Question

Quizplus · Accepted Answer

Since Donald Inc. has a higher percentage of its current assets tied up in inventory compared to Mickey Corp., it has less liquid assets available to cover its current liabilities, making it less liquid than Mickey.

Two Companies Have an Identical Amount of Current Assets and Current