CFA Level I · CFA Level I Exam · Working Capital and Liquidity
A company has current assets of 600,000 and current liabilities of 400,000. Of the current assets, inventory is 150,000 and prepaid expenses are 30,000. The company's quick ratio (using cash, marketable securities and receivables as the numerator) is closest to:
The quick ratio is about 1.05. Quick assets exclude inventory and prepaid expenses, leaving 420,000 of current assets after deducting 180,000. Dividing 420,000 by current liabilities of 400,000 gives 1.05. The 1.50 figure is simply the current ratio, which includes inventory.
- A0.30
- B1.05Correct
- C1.50
Explanation
Quick assets = 600,000 - 150,000 - 30,000 = 420,000. Quick ratio = 420,000 / 400,000 = 1.05. The 1.50 figure is the current ratio, and 0.30 would result from dividing the excluded items by current liabilities incorrectly.
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