US CMA Part 2 · Chapter 1 · Question 6 of 15
Which liquidity measure is the most conservative because it compares only cash and marketable securities with current liabilities?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Cash ratio
Explanation
The cash ratio = (cash + marketable securities) / current liabilities. It excludes receivables and inventory, which the quick and current ratios respectively include, so it is the most conservative liquidity measure. Times interest earned is a solvency (coverage) measure, not a liquidity measure.
More Financial statement analysis: liquidity, activity and solvency MCQs
- Q8Fenwick Hardware reported cost of goods sold of $1,512,000. Inventory was $240,000 at the start of the year and $192,000 at the end. Using…
- Q9Garrick Instruments has days inventory outstanding of 52 days, days sales outstanding of 30 days and days payables outstanding of 38 days…
- Q10Halden Corp. has total liabilities of $900,000 and total shareholders' equity of $1,200,000. What is its debt-to-equity ratio?
- Q11Irvine Logistics reported net income of $420,000, income tax expense of $140,000 and interest expense of $90,000. What is its times…
- Q12Jansen Retail has earnings before interest and taxes of $650,000 (after deducting lease payments), interest expense of $90,000 and annual…