correctly solved 2025/2026
Current Ratio - correct answer ✔Is a liquidity ratio. Short-term debt paying ability.
Current Assets/Current Liabilities
Quick Ratio - correct answer ✔Also known as acid test. Is a liquidity ratio. Provides a more accurate
cash position of firm by excluding inventory from current assets.
Current Assets-Inventory/Current Liabilities
AR Turnover - correct answer ✔Is an activity/asset management ratio. Helps to identify how quickly
these accounts receivables turn over during a given year. A rate of 12 indicated that the company is
collecting once a month. If less or decreasing then it may indicate that the company is taking longer to
collect.
Credit Sales/Accounts Receivable
Average Collection Period (ACP) - correct answer ✔Is an activity ratio. Convert AR turnover into a day
count measure.
365/AR Turnover
Inventory Turnover - correct answer ✔Is an activity ratio. Measures the efficient use of inventories. A
high number may indicate whether there is enough product on hand; a lower number may indicate it's
taking too long to turnover inventory.