Match the following-
| LIST 1 | LIST 2 |
| A) Current ratio | I) 1:1 |
| B) Quick ratio | II) Deducted from current asset to calculate quick assets |
| C) Inventory | III) 2:1 |
| D) Equity | IV) Used in long-term solvency ratio |
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- A-III, B-I, C-II, D-IV.
| LIST 1 | LIST 2 |
| A) Current ratio | III) 2:1 |
| B) Quick ratio | I) 1:1 |
| C) Inventory | II) Deducted from current asset to calculate quick assets |
| D) Equity | IV) Used in long-term solvency ratio |
* Current ratio- In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations.
* Quick ratio- Ratio of 1:1 is held to be the ideal quick ratio indicating that the business has in its possession enough assets which may be immediately liquidated for paying off the current liabilities.
* Inventory- While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid expenses, advance tax, etc., from the current assets.
* Equity- Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. While determining solvency ratio equity is used.