## DragIT - Liquidity ratios

In the image below, try clicking on the arrows beside each variable to see the impact of changes on the liquidity ratios. Once you have done that, you may like to have a go at the questions below.

1

##### Stock changes - acid test ratio

When stocks increase the value of the acid test ratio will fall.

 a) True b) False Yes, that's correct. The statement is true. When stocks increase the top half of the acid test ratio (current assets less stock) will decrease. This will reduce the value of the acid test ratio.No, that's not right. The statement is true. When stocks increase the top half of the acid test ratio (current assets less stock) will decrease. This will reduce the value of the acid test ratio.Your answer has been saved.

2

##### Stock changes - current ratio

When stocks increase the value of the current ratio will fall.

 a) True b) False Yes, that's correct. The statement is false. When stocks increase the top half of the current ratio (cash, debtors and stock) will increase. This will increase the value of the current ratio.No, that's not right. The statement is false. When stocks increase the top half of the current ratio (cash, debtors and stock) will increase. This will increase the value of the current ratio.Your answer has been saved.

3

##### Current ratio

Which of the following is the correct formula for the current ratio?

 a) Current liabilities divided by current assets b) Current assets less stock divided by current liabilities c) Net assets divided by current liabilities d) Current assets divided by current liabilities Please select an answerNo, that's not right. This is the right variables, but the formula is the wrong way up.No, that's not right. This is the formula for the acid test ratio.No, that's not right. This isn't the formula for any ratio.Yes, that's correct. The current ratio is calculated from the formula current assets divided by current liabilities.