Quick ratio of a company is 1.5:1. State with reason, whether the purchase of inventory for cash will improve, reduce or not change in the ratio.

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Solution

Dear Student,

$Q u i c k R a t i o = \frac{Q u i c k A s s e t s}{C u r r e n t L i a b i l i t i e s}$

Purchase of inventory for cash increases the inventory and reduces the cash.
However, inventory is not included in the quick assets. Only cash is a part of the current assets.

So, in the quick ratio,due to this transaction, the quick assets will get reduced and thus the numerator will get reduced having
no effect on the denominator. This will reduce the quick ratio,

Regards

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