Banking · Financial Ratio Analysis
During financial appraisal for a working capital limit, if a firm's Current Ratio is significantly higher than the industry average, but its Quick Ratio is significantly lower than the average, which risk does this discrepancy highlight?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The company is liquidating its trade creditors much faster than standard industry norms.
- 2The company has zero long-term liabilities and is funded entirely through equity capital.
- 3The company is carrying an excessive amount of slow-moving, non-moving, or obsolete inventory.✓
- 4The company has excessive idle cash and bank balances that are not earning returns.
Correct answer
The company is carrying an excessive amount of slow-moving, non-moving, or obsolete inventory.
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