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IGCSE Business Studies7.4.2—Acid test ratioTopic Practice

7.4.2—Acid test ratio

• Acid test ratio = Current assets - inventory : current liabilities, or (current assets - inventory) / current liabilities. Answer can be presented as a ratio : 1 or as a number.

Question 2(b)

[Maximum number: 2]

WFH produces hats and sells them to a mass market. It holds a high level of inventory. The Managing Director is concerned about the liquidity of the business and has been analysing WFH's financial statements. An extract is shown in Table 2.1. The Managing Director thinks that the business might fail. Other stakeholder groups might also be interested in WFH's financial statements.

Table 2.1

Table 2.1

Calculate WFH's acid test ratio for 2022. Show your working.

Working:
Final answer:

Question 3(b)

[Maximum number: 2]

CLN is a public limited company. It sells a range of electrical products such as televisions and computers. The Managing Director has been analysing CLN's accounts. An extract is shown in Table 3.1. He said: 'We need more finance. Last year CLN made a loss of $250 m\$ 250 \mathrm{~m}. I blame increased competition from e-commerce.' CLN plans to close 30 of its 120 shops. This decision will affect many of its stakeholders including the local communities. The number of sales from each shop will be used to decide which shops to close.

Table 3.1

Table 3.1

Calculate the acid test ratio. Show your working.

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