CMA Intermediate · Financial Management and Business Data Analytics · Financial Ratio Analysis
Sundaram Textiles Ltd has current assets of ₹6,00,000, which include inventory of ₹2,00,000 and prepaid expenses of ₹20,000. Current liabilities are ₹3,00,000. What is the quick (acid-test) ratio if prepaid expenses are excluded along with inventory?
Quick assets are current assets less inventory and prepaid expenses, which gives ₹3,80,000. Dividing by current liabilities of ₹3,00,000 gives a quick ratio of about 1.27:1.
- A1.40:1Correct
- B1.27:1
- C2.00:1
- D1.33:1
Explanation
Quick assets = 6,00,000 - 2,00,000 - 20,000 = 3,80,000. Quick ratio = 3,80,000 / 3,00,000 = 1.27:1. Option 1.40 is wrong as it ignores both inventory and prepaid expenses incorrectly (wrong). Check: 1.27 appears as option 2, so the key must be that one.
Did you get it right without looking?
One question tells you little. A timed set on Financial Ratio Analysis shows your real accuracy, how long you take and where you lose marks.
More Financial Ratio Analysis questions
- Kaveri Foods Ltd has sales of Rs 12,00,000, net profit of Rs 96,000, total assets of Rs 6,00,000 and shareholders' equity of Rs 4,00,000. It…
- Arvind Ltd's ROE fell from 20% to 15% while its net profit margin stayed constant at 5%. In the year the equity multiplier rose from 2.0 to …
- Sundaram Textiles Ltd has a net profit margin of 6%, total asset turnover of 2.5 times and an equity multiplier of 1.8. Its return on equity…
- Which of the following is a recognised limitation of financial statement analysis based on published annual reports?
- In data analysis of a firm's liquidity, an analyst plots current ratio of ten companies against their quick ratio to see how they move toget…
- Hindustan Agro Ltd has a current ratio of 2:1 with current liabilities of ₹5,00,000. It pays ₹1,00,000 of trade payables in cash. What is th…