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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z ALL You Have Viewed Too Many Free Essays, Term Papers, and Book Reports. Accounting Accounting CURRENT RATIO The most common ratio using current-asset and current-liability data is the current ratio, which is current assets divided by current liabilities. Recall the makeup of current assets and current liabilities. Inventory is converted to receivables through sales, the receivables are collected in cash, and the cash is used to buy inventory and pay current liabilities. A company’s current assets and current liabilities represent the core of its day-to-day operations. The current ratio measures the company’s ability to pay current assets with current liabilities. Generally a higher current ratio indicates a stronger financial position. A higher current ratio suggests that the business has sufficient liquid assets to maintain normal business operations. ACID-TEST RATIO The acid-test (or quick) ratio tells us whether the entity could pay all its current liabilities if they came due immediately. ÷ That is, could the company pass this acid test? To do so, the company would have to convert its most liquid assets to cash. To compute the acid-test ratio, we add cash, short-term investments, and net current receivables (accounts and notes receivable, net of allowances) and divide by current liabilities. Inventory and prepaid expenses are the two current assets not included in the acid-test computations because they are the ratio, net, common, sales, current, income, return, inventory, assets, turnover, share, stock, per, debt, business, receivable, liabilities, interest, company’s, stockholders’, higher, equity, value, total, high, compute, average, year, receivables, rate, preferred, pay, measures, divide, cash, accounts, stockholders, market, indicates, earnings, during, company, amount, acid-test, stock’s, number, expense, dividends, times, sold Word Count: 1448 Acceptance_Essays American_History Anatomy_&_Physiology Animal_Science_&_Zoology Anthropology Architecture Art Astronomy Aviation Biographies Book_Reports Business Computers Creative_Writing Current_Events Economics Education Engineering English Environmental_Science Ethics European_History Film_&_TV Foreign_Languages Geography Government_&_Politics Health_&_Beauty History_Other Human_Sexuality Legal_Issues Marketing Mathematics Medicine Miscellaneous Music Mythology Philosophy Physics Poetry Political_Science Psychology Religion Science Shakespeare Social_Issues Sociology Speech Sports_&_Recreation Supernatural Technology Theater Theses_&_Dissertations

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