Discussion
Consider the following :
(i) Basic defensive and interval ratio
(ii) Current ratio
(iii) Superquick ratio
(iv) Quick ratio
Arrange these ratios in sequence to reflect the liquidity in descending order.
Answer: A
The keyed answer is (A), the order current ratio, quick ratio, superquick ratio, basic defensive interval ratio. The current ratio counts all current assets against current liabilities and is the widest measure. The quick ratio takes out stock and prepaid items. The superquick ratio keeps only cash and marketable securities. The basic defensive interval ratio measures how many days the liquid assets can meet daily operating expenses and is the narrowest. The question asks for the descending order of these measures, and the key follows the width of the assets counted. Options (B), (C) and (D) place the narrowest measure or the quick ratio ahead of the current ratio.
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