A firm's quick ratio equals 1.31 and its cash ratio equals 1.19. If the firm has receivables of 693, its current liabilities equal ________.
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A. B. C. D.C
The definitions of the two ratios are:
Quick ratio = (cash + marketable securities +receivables)/current liabilities
Cash ratio = (cash + marketable securities)/current liabilities
Thus, (Quick ratio - Cash ratio) = receivables/current liabilities.
Therefore, 1.31 - 1.19 = 0.12 = 693/current liabilities. Solving, we get current liabilities = 693/0.12 = 5,775.