The data of Franklin Brothers Corp. for two years are given below
2016 2017
Cash and cash equivalents $5,300 $12,300
Total current liabilities 24,000 35,000
Based on the above information, which of the following statements is true?
A) Cash ratio has increased from 0.02 in 2016 to 0.03 in 2017.
B) Cash ratio has increased from 0.05 in 2016 to 0.08 in 2017.
C) Cash ratio has increased from 0.351 in 2016 to 0.221 in 2017.
D) Cash ratio has increased from0.221 in 2016 to 0.351 in 2017.
D .Calculation of cash ratios:
Cash Ratio = (Cash + Cash Equivalent) / Total Current Liabilities
2017: Cash Ratio = $12,300 / $35,000 = 0.351
2016: Cash Ratio = $5,300 / $24,000 = 0.221
A higher cash ratio is usually considered favorable as the company is said to be in a better position to pay off its current liabilities.
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