Which of the following actions would NOT affect the quick / liquid ratio of a firm?

Question

BlackTom AI · Accepted Answer

To assess which action would NOT affect the quick/liquid ratio, we first recall that the quick ratio = (quick assets) / (current liabilities), where quick assets are cash, marketable securities, and accounts receivable (inventory is excluded).

Option a: Purchase inventory on credit. This increases current liabilities (payables) and increases inventory (a non-quick asset). Since quick assets do not rise with this transaction and current liabilities do, the quick ratio would decline. Therefore, this action does affect the quick ratio in a negative way.

Option b: Sell fixed assets for cash. Cash is a quick asset, while fixed assets are not part of quick assets. This transaction increases quick assets (cash) while current liabilities stay the same, so the quick ratio would rise. Thus, this action does affect the quick ratio positively.

Option c: Sell inventory on credit. Inventory is not a quick asset, but selling it on credit converts inventory into accounts receivable, a quick asset. Current liabilities remain unchanged. Net effect is an increase in quick assets (via AR) with no change in liabilities, so the quick ratio would improve. This action does affect the quick ratio.

Option d: Collect outstanding accounts receivable. This simply converts AR into cash, both of which are quick assets, leaving the total of quick assets unchanged and current liabilities unchanged. Consequently, the quick ratio remains the same, meaning this action would NOT affect the quick ratio.

In summary, among the options, the action that would not affect the quick ratio is the collection of outstanding accounts receivable, since it merely reclassifies one form of quick asset into another without changing the total quick assets or current liabilities.

Which of the following actions would NOT affect the quick / liquid ratio of a firm?

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