If a firm has a high current ratio but a low acid-test ratio,one can conclude which of the following?
A) The firm has a large outstanding accounts receivable balance.
B) The firm has a large investment in inventory.
C) The firm has a large amount of current liabilities.
D) The firm's financial leverage is very high.

Question

Quizplus · Accepted Answer

A high current ratio indicates that the firm has enough current assets to cover its current liabilities, but a low acid-test ratio suggests that a significant portion of the firm's current assets is tied up in inventory, which may be difficult to convert quickly into cash. Therefore, choice B is the best option. Choices A, C, and D do not necessarily follow from the information given.

If a Firm Has a High Current Ratio but a Low