Question

The quick ratio of company is 1 : 0·75. Will purchase of goods for cash ₹ 70,000 increase, decrease or not change the ratio? Give reason in support of your answer.

Answer 1

The quick ratio will decrease because quick assets like cash will reduce, while the stock of goods will increase. Since stock is not included in quick assets, it will only raise current assets. There will be no change in current liabilities.

Working Note:

Quick Ratio = 1 : 0·75

= `(1,00,000-70,000)/(75,000)`

= `(30,000)/(75,000)`

= 0.3 : 0.75