19.2.1. Liquidity Ratios

Try these first

1. 1.

   Calculate the current ratio if a company has $150,000 in current assets and$75,000 in current liabilities.

   Hint

   Use the formula Current Assets / Current Liabilities.

2. 2.

   What is a healthy current ratio for most companies?

   Hint

   Think of the common guideline for adequate liquidity.

3. 3.

   What is the formula for calculating the Current Ratio?

   Hint

   Remember the structure that highlights a firm's immediate financial health.

4. 4.

   True or False: A Quick Ratio of 0.5 indicates that a company can cover its short-term liabilities.

   Hint

   Think of what a ratio below 1 signifies in the context of liquidity.

5. 5.

   A tech company has a current ratio of 1.2 and wants to improve its liquidity. They decide to reduce some liabilities by $50,000 and increase current assets by$100,000. What will the new current ratio be?

   Hint

   Use the formula to calculate the new ratio based on the changes made.

6. 6.

   Discuss the potential impact on the stock price of a tech startup if it reports a current ratio of below 1 in its quarterly earnings report.

   Hint

   Consider how markets react to perceived financial health.