To calculate and analyze the current and quick (acid-test) ratios of different businesses.

Current and Quick (Acid-Test Ratios in Accounting)
Question 1.
The current ratio for Potz and Pans has been calculated as 5.00:1 whereas the current ratio for WannaBees has been calculated as 1.76:1. Based on these results, it is prudent to assume that Potz and Pans is most likely to get the loan, although WannaBees also has good results. This is because the ratio is a measure of a company’s capacity to meet its financial obligations. Both companies have current ratio figures greater than 1 to indicate that their assets are greater than the liabilities. Given that Potz and Pans has the highest ratio, it can be inferred that this is an indication that the company is financially well off. Still, the figures must be approached with caution since the high figures can also be an indication that the company is not making the best use of its working capital, has not secured financing and is not making efficient use of its current assets. In this respect, the current ratio results show that Potz and Pans is more likely to get the loan when compared to WannaBees.
Question 2.
The acid-test ratio for Potz and Pans has been calculated as 1.67:1 whereas the acid-test ratio for WannaBees has been calculated as 0.29:1. Based on the results, Potz and Pans should receive the loan. This is because the company has a ratio figure of 1.67:1 to indicate that for every $1 of current liability, the company has $1.67 liquid assets value to cover its immediate obligations. In addition, the figure shows that the company is collecting its receivables at a fast rate, paying its bills at the right time, growing sales and is not overleveraged.

In contrast, WannaBees should not receive the loan since it is unable to meet its immediate obligations. This is evidenced by the fact that for every $1 of current liability, the company has $0.29 liquid value. The figures show that WannaBees is collecting its receivables at a very slow rate, experiencing declining growth and is overleveraged. As a result, acid-test ratio results show that Potz and Pans should get the loan while WannaBees should not get the loan.