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Financial Statement Analysis and Ratios
Quick questions on Liquidity ratios explained: O-Level Principles of Accounts
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 is the current ratio?Show answer
The current ratio compares all current assets with current liabilities:
What is the quick (acid-test) ratio?Show answer
The quick ratio is stricter: it excludes inventory, the least liquid current asset, because inventory must first be sold and then the cash collected before it can pay a debt:
What is q1?Show answer
Current assets are \60,000\. State the current ratio. [1 mark]
What is q2?Show answer
Current assets \45,000\; current liabilities are \25,000$. State the quick ratio. [2 marks]
What is q3?Show answer
Explain why a business with a current ratio of might still face a liquidity problem. [2 marks]
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