CFA Level I · CFA Level I Exam · Working Capital and Liquidity
Company X reports the following (in $ thousands): cash 120, accounts receivable 380, inventory 500, accounts payable 300, accrued expenses 100, and short-term debt 200. Its quick ratio (cash plus receivables divided by current liabilities) is closest to:
The quick ratio is about 0.83. Quick assets of cash 120 plus receivables 380 equal 500, divided by current liabilities of 600 (payables 300, accruals 100, short-term debt 200). Including inventory would give the current ratio of 1.67, which is a different measure.
- A0.83Correct
- B0.90
- C1.67
Explanation
Current liabilities = 300 + 100 + 200 = 600. Quick assets = 120 + 380 = 500. Ratio = 500/600 = 0.83. Using the current ratio (1,000/600 = 1.67) would wrongly include inventory; 0.90 is not supported by any consistent calculation.
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