Question

Which ratio is helpful in understanding whether the relationship between cash and marketable securities is reasonable in relation to current assets or total assets?A. Lease expense/Total fixed assetsB. Total liabilities/Total assetsC. Cash/Marketable securitiesD. Current assets/Total assets

Answer 1

Answer:

The ratio that is helpful in understanding whether the relationship between cash and marketable securities is reasonable in relation to current assets or total assets is;

Current assets/Total assets

Explanation:

Current assets represent a portion of the total assets that can be converted into cash or marketable securities quickly. A higher Current assets to total assets helps one to know the amount of the total assets that can be liquidated fairly quickly. The current assets should be able to be converted into cash or cash equivalents within a year to be deemed as a current asset. Examples of current assets are; cash, cash equivalents, stock inventories, market securities, accounts receivable, inventories and other liquid assets.

Current assets are the exact opposite of long-term assets, since the latter represents the portion of total assets that can not be easily converted in cash and cash equivalents within a year. They usually take a much longer time to convert into cash. They are; equipment, land and buildings.

The total assets include all the assets mentioned above. The summation of currents assets and long-term assets form the total assets.