Question
How do you build a common-size balance sheet?
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Answer
Express each balance sheet line item as a percentage of total assets.
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Question
How does the quick ratio differ from the current ratio?
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Answer
It excludes less-liquid inventory and focuses on more liquid assets.
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Question
If the current ratio falls over time, what does that usually signal?
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Answer
Weaker liquidity and greater short-term payment risk.
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Question
What does the current ratio measure?
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Answer
Short-term liquidity: current assets relative to current liabilities.
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