Asked by Sameer Ishaq on May 04, 2024
Verified
If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.
Quick Ratio
A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable).
Account Payable
Financial obligations or debts owed by a business to its suppliers or creditors for goods and services received.
- Appreciate the role of financial ratios in evaluating a company's liquidity, profitability, and solvency.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
False
Explanation :
If a firm has a quick ratio of 1, it means that it has exactly enough quick assets (cash, marketable securities, and accounts receivable) to cover its current liabilities. The subsequent payment of an account payable will decrease the amount of cash on hand, which in turn will decrease the quick ratio. Therefore, the ratio will not increase but will actually decrease.
Learning Objectives
- Appreciate the role of financial ratios in evaluating a company's liquidity, profitability, and solvency.
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