Question

Red Line, Inc. has a cash balance of $80,000, short-term investments of $20,000, net receivables of $60,000, and inventory of $450,000. Current liabilities total$200,000. What’s Red Line’s quick ratio?

Answer 1

Answer: 0.80:1

Explanation:

Given that,

Cash balance = $80,000

Short-term investments = $20,000

Net receivables = $60,000

Inventory = $450,000

Current liabilities total = $200,000

Quick assets = Cash balance + Short-term investments + Net receivables

= $80,000 + $20,000 + $60,000

= $160,000

Red Line’s quick ratio = $\frac{Quick\ Assets}{Current\ Liabilities}$

= $\frac{160000}{200,000}$

= 0.80 : 1