CH2

Question 1

Quick Ratio Formula

Answer 1

The formula is (Current Assets - Inventory) / Current Liabilities. An increase in current liabilities would decrease the quick ratio.

Question 2

Cash Coverage Ratio Forumula

Answer 2

This ratio is (EBIT + Depreciation) / Interest. It is not directly affected by an increase in current liabilities, so this would not decrease.

Question 3

Current Ratio Formula

Answer 3

The formula is Current Assets / Current Liabilities. An increase in current liabilities would decrease the current ratio.

Question 4

Cash Ratio Formula

Answer 4

The formula is Cash / Current Liabilities. An increase in current liabilities would decrease the cash ratio.

Question 5

Net Working Capital to Total Assets Ratio

Answer 5

Net working capital is calculated as Current Assets - Current Liabilities. An increase in current liabilities would decrease net working capital and thus decrease this ratio.