Financial Accounting
Financial Accounting
18th Edition
ISBN: 9781260706307
Author: Jan Williams
Publisher: Mcgraw-hill Higher Education (us)
Question
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Chapter 14, Problem 1STQ
To determine

Identify which of the stated ratio or item that is least important as a measure of short-term liquidity.

Expert Solution & Answer
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Answer to Problem 1STQ

c. Debt ratio.

Explanation of Solution

Option a. Quick ratio: The liquidity ratio which evaluates the ability of a company to pay off the instant debt obligations is referred to as quick ratio. Quick assets are cash, marketable securities, and accounts receivables.

Option b. Current ratio: Current ratio is one of the liquidity ratios, which measures the capacity of the company to meet its short-term obligations using its current assets

Option c. Debt ratio: The debt ratio shows the relationship between total asset and the total liability of the company. Debt ratio reflects the financial strategy of the company. It is used to measure the percentage of company’s assets that are financed by long term debts.

Option d. Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company. Cash flows from operating activities are reported in the statement of cash flows to ascertain the amount of cash inflows and outflows from operating activities during the year. Hence, it is not a measure of short term liquidity.

From the above explanation, Options (a), (b) and (c) are incorrect answers. Thus, the correct answer is Option (c).

Conclusion

Hence, the correct answer is Option c. Debt ratio.

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Chapter 14 Solutions

Financial Accounting

Ch. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQCh. 14 - 7. What is the characteristic common to all...Ch. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 15DQCh. 14 - BRIEF EXERCISE 14.1 Dollar and Percentage...Ch. 14 - BRIEF EXERCISE 14.2 Trend Percentages Star, Inc.,...Ch. 14 - Prob. 3BECh. 14 - BRIEF EXERCISE 14.4 Working Capital and Current...Ch. 14 - BRIEF EXERCISE 14.5 Current and Quick Ratio Foster...Ch. 14 - BRIEF EXERCISE 14.6 Debt Ratio Jarman Company had...Ch. 14 - Prob. 7BECh. 14 - BRIEF EXERCISE 14.8 Earnings per Share Multi-Star,...Ch. 14 - Prob. 9BECh. 14 - BRIEF EXERCISE 14.10 Return on Equity Prince...Ch. 14 - Prob. 1ECh. 14 - EXERCISE 14.2 Trend Percentages Compute trend...Ch. 14 - Prob. 3ECh. 14 - EXERCISE 14.4 Measures of Liquidity Roy’s Toys is...Ch. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Prob. 7ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 1APCh. 14 - Prob. 2APCh. 14 - Prob. 3APCh. 14 - Prob. 4APCh. 14 - Prob. 5APCh. 14 - Prob. 6APCh. 14 - Prob. 7APCh. 14 - Prob. 8APCh. 14 - Prob. 9APCh. 14 - Prob. 1BPCh. 14 - Prob. 2BPCh. 14 - Prob. 3BPCh. 14 - Prob. 4BPCh. 14 - PROBLEM 14.5B Balance Sheet Measures of Liquidity...Ch. 14 - Prob. 6BPCh. 14 - Prob. 7BPCh. 14 - Prob. 8BPCh. 14 - Prob. 9BPCh. 14 - Prob. 1CTCCh. 14 - Prob. 2CTCCh. 14 - Prob. 3CTCCh. 14 - Prob. 5CTCCh. 14 - Prob. 4CP
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