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Financial Statement Analysis
Quick questions on Liquidity and efficiency ratios explained: H2 Principles of Accounting
5short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are liquidity ratios?Show answer
The current ratio includes all current assets; the quick ratio strips out inventory, which can be slow to convert to cash. A quick ratio around is often seen as comfortable, but the right level depends on the industry.
What is the cash cycle?Show answer
These efficiency ratios combine into the cash (operating) cycle:
What is q1?Show answer
Current assets are \90\,000\); current liabilities \45\,000$. Find the current and quick ratios. [3 marks]
What is q2?Show answer
Credit sales are \365\,000\. Find the collection period. [2 marks]
What is q3?Show answer
Explain why holding too much inventory can harm liquidity even though it appears as a current asset. [3 marks]
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