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Both the current ratio and the quick ratio for Spartan Corporation have been slowly decreasing
Both the current ratio and the quick ratio for Spartan Corporation have been slowly decreasing. For the past two years, the current ratio has been 2.3-to-1 and 2.0-to-1. During the same time period, the quick ratio has decreased from 1.2-to-1 to 1.0-to-1. The disparity between the current and quick ratios can be explained by which one of the following? Basic Calculator Time Value Tables 7 A. The accounts receivable balance has decreased. . B. The current portion of long-term debt has been steadily increasing. 10 11 C. The cash balance is unusually low. 12 D. The inventory balance is unusually high 14
Expert Solution
Current Assets = Current Assets / Current Liabilites
Quick Ratio = (Current Assets - Inventory ) / Current Liabilites
The current ratio includes all current assets in its calculation, while the quick ratio only includes quick assets ( Excludes Inventory ).
Both the current ratio and the quick ratio are considered liquidity ratios, measuring the ability of a business to meet its current debt obligations
The Disparity bettween Current ratio & Quick ration can be Explanied by the Inventory balance is Unsually high .
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