SIDC Module 7 Financial statement analysis and ratios question: Alpha's cash ratio

SIDC Module 7Financial statement analysis and ratios

Alpha Bhd (RM million): cash and cash equivalents 50; trade receivables 120; inventory 130; current liabilities 200. What is Alpha's cash ratio?

A 0.25 times
B 0.85 times
C 1.50 times
D 4.00 times

Show the answer and explanation

Answer: A. 0.25 times

The cash ratio is the strictest liquidity measure: cash and cash equivalents ÷ current liabilities = 50 ÷ 200 = 0.25 times. 0.85 times is the quick ratio, which adds receivables ((50 + 120) ÷ 200). 1.50 times is the current ratio, which also includes inventory. 4.00 times inverts the cash ratio (200 ÷ 50). The cash ratio is a stringent test because it assumes neither receivables nor inventory can be turned into cash in time to meet current liabilities. Source: SIDC M7 Study Outline Topic 3.2 Techniques of Analysis (liquidity ratios) (as at October 2026).

Common mistake

Including receivables. The cash ratio counts only cash and cash equivalents against current liabilities.

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Original study material mapped to the public SIDC Module 7 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.