Welcome to Westonci.ca, your one-stop destination for finding answers to all your questions. Join our expert community now! Discover reliable solutions to your questions from a wide network of experts on our comprehensive Q&A platform. Our platform offers a seamless experience for finding reliable answers from a network of knowledgeable professionals.
Sagot :
To determine the correct formula for calculating a company's acid-test ratio, let's break down each option and find the appropriate one:
1. Merchandise inventory divided by Total assets:
- This formula does not relate to the acid-test ratio. It calculates the proportion of inventory relative to the total assets.
2. Current assets divided by Total assets:
- This formula gives the proportion of current assets relative to the total assets, which is not the acid-test ratio.
3. (Cash plus Short-term investments plus Current receivables plus Inventory) divided by Current liabilities:
- This formula includes inventory in the calculation, which is a deviation from the acid-test ratio. Including inventory reflects the current ratio, not the acid-test ratio.
4. (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities:
- This is the correct formula for the acid-test ratio. It excludes inventory, focusing on the most liquid assets that can quickly cover current liabilities.
The acid-test ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Therefore, the correct formula for the acid-test ratio is:
(Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
Given this, the correct option is:
- (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
1. Merchandise inventory divided by Total assets:
- This formula does not relate to the acid-test ratio. It calculates the proportion of inventory relative to the total assets.
2. Current assets divided by Total assets:
- This formula gives the proportion of current assets relative to the total assets, which is not the acid-test ratio.
3. (Cash plus Short-term investments plus Current receivables plus Inventory) divided by Current liabilities:
- This formula includes inventory in the calculation, which is a deviation from the acid-test ratio. Including inventory reflects the current ratio, not the acid-test ratio.
4. (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities:
- This is the correct formula for the acid-test ratio. It excludes inventory, focusing on the most liquid assets that can quickly cover current liabilities.
The acid-test ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Therefore, the correct formula for the acid-test ratio is:
(Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
Given this, the correct option is:
- (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
Thanks for using our service. We aim to provide the most accurate answers for all your queries. Visit us again for more insights. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. We're glad you chose Westonci.ca. Revisit us for updated answers from our knowledgeable team.