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Firm's current assets include cash, debtors and stock. If its inventories increased by 10% and its current ratio remains same; quick ratio will ____?

Accounting Financial Analysis Financial Statements
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Question added by Shaikh Muhammad Yousuf , Manager Accounts , Al Wahdania Group of Companies
Date Posted: 2016/02/07
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Mahmoud Hamid
by Mahmoud Hamid , Finance Manager , Experts

If Current Ratio = cash + Inventory / Current Liability = /=1.5

When we purchase inventory by cash, the ration will become = / =1.5 (no change)

That means Quick Ratio we become/=0.4 (decrease)

Junaid Talaat Waheed Khan
by Junaid Talaat Waheed Khan , Corporate Affairs Manager , Pakistan International Airlines Corporation Limited (PIA)

'Decrease'

 

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

 

Current Ratio = Current Assets / Current Liabilities

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