The data of Franklin Brothers Corp. for two years are given below: Based on the above information, which of the following statements is true?
A)Cash ratio has increased from 0.02 in 2014 to 0.03 in 2015.
B)Cash ratio has increased from 0.05 in 2014 to 0.08 in 2015.
C)Cash ratio has increased from 0.417 in 2014 to 0.225 in 2015.
D)Cash ratio has increased from 0.225 in 2014 to 0.417 in 2015.

Question

The data of Franklin Brothers Corp. for two years are given below:  Based on the above information, which of the following statements is true?
A)Cash ratio has increased from 0.02 in 2014 to 0.03 in 2015. 
B)Cash ratio has increased from 0.05 in 2014 to 0.08 in 2015. 
C)Cash ratio has increased from 0.417 in 2014 to 0.225 in 2015. 
D)Cash ratio has increased from 0.225 in 2014 to 0.417 in 2015.

Quizplus · Accepted Answer

Cash ratio is calculated as (Cash + Marketable Securities)/Current Liabilities. So, we need to calculate this ratio for both years to compare.
For 2014: Cash ratio = (100+30)/350 = 0.417
For 2015: Cash ratio = (125+20)/500 = 0.29
We can see that the cash ratio has increased from 0.417 in 2014 to 0.29 in 2015. Therefore, options A, B, and C are incorrect. Option D correctly states that the cash ratio has increased from 0.225 in 2014 to 0.417 in 2015, which is the highest among all given options.

The Data of Franklin Brothers Corp