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Effects on current and quick ratio

Forums › ACCA Forums › ACCA PM Performance Management Forums › Effects on current and quick ratio

  • This topic has 0 replies, 1 voice, and was last updated 2 years ago by Iniss.
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  • October 25, 2023 at 3:01 pm #693967
    Iniss
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    • Topics: 53
    • Replies: 56
    • ☆☆

    If the firm uses its cash in bank to pay some of the payables, what is the effect on current and quick ratos? Let use figures to solve this:
    Current assets = $75
    Inventory = $30
    Current liabilities = $50
    Current ratio = $75/$50 = 1.5
    Quick ratio = ($75-$30)/$50 = 0.9
    The firm paid $30 of its payables using cash
    Current ratio = ($75-$30)/($50-$30) = 2.25
    Quick ratio = ($75-$30-$30)/($50-$30) = 0.75
    Therefore, the current ratio will increase (1.5 to 2.25) and quick ratio will decrease (0.9 to 0.75)
    I wonder if this is always the case?
    Or the ratios can vary depend on the figures on the context? If so, then for question with no numbers, what will the effects be?

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