Home › CS Executive › fsm › Nature, Significance and Scope of Financial Management › The lesson, while endorsing the Quick Ratio for …
The lesson, while endorsing the Quick Ratio for cash-position decisions, also flags a main shortcoming. What does the lesson identify as the main shortcoming of the Quick Ratio?
Answer & Solution
Correct answer: C.
1. The lesson uses Quick Ratio as a finer liquidity measure than Current Ratio.
2. Its main shortcoming is that it ignores inventories.
3. Inventory is a basic input in current operations, so omitting it leaves the picture incomplete.
4. The Quick Ratio concentrates on cash, marketable securities and receivables in relation to current obligations.
5. The other descriptions misstate the shortcoming or invent regulatory rules.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
Related questions
The lesson defines Net Working Capital using a simple subtraction of two current items. WhThe lesson presents the undiscounted benefit-cost ratio as a project-evaluation criterion.In the EVA framework set out in the lesson, the "capital charge" is described as a specifiThe lesson uses the Average Collection Period (ACP) as a liquidity indicator. According toThe lesson critiques the pay back decision criterion on a specific structural ground. WhatThe lesson lists tools of analysis that underpin investment decisions. Which combination oThe lesson asks whether financial management is a science or an art, and gives a specific The lesson observes a tension between liquidity and profitability that the financial manag