Lesson 2.3.2a

2.3.2a Liquidity ratios and improving liquidity Quiz: Pearson Edexcel Business, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 2.3.2a, Liquidity ratios and improving liquidity: 20 multiple choice questions for the Pearson Edexcel Business (9BS0), Unit 2: Managing business activities, written with Revision Ninja.

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The 20 questions

  1. What is the correct formula for the standard current ratio?

    • Current liabilities ÷ current assets
    • Current assets + current liabilities
    • Non-current assets ÷ capital employed
    • Current assets ÷ current liabilities

  2. A business has current assets of £150,000 and current liabilities of £100,000. What is its current ratio?

    • 1:1.5
    • 1.5:1
    • 0.67:1
    • 2.5:1

  3. Which formula correctly calculates the acid test ratio?

    • Current assets – current liabilities
    • Current assets ÷ current liabilities
    • (Current assets + stock) ÷ liabilities
    • (Current assets – stock) ÷ liabilities

  4. A business has current assets of £200,000 including stock of £90,000, and current liabilities of £120,000. What is its acid test ratio?

    • 0.92:1
    • 1.67:1
    • 0.75:1
    • 1.25:1

  5. Which asset is excluded when calculating the acid test ratio?

    • Bank balance
    • Cash
    • Stock
    • Trade receivables

  6. Which action directly improves a business's current ratio?

    • Taking short-term loans
    • Selling non-current assets
    • Buying stock on credit
    • Paying trade receivables

  7. What does a current ratio of 0.8:1 indicate?

    • Liquidity problems
    • Excess idle cash
    • High profitability
    • Strong working capital

  8. Which financial change directly reduces a firm's acid test ratio?

    • Increasing current liabilities
    • Selling surplus inventory
    • Reducing trade payables
    • Increasing liquid cash

  9. A business has current assets of £60,000, stock of £20,000 and current liabilities of £40,000. What is the current ratio?

    • 1:1
    • 1.5:1
    • 0.67:1
    • 2:1

  10. A business has current assets of £60,000, stock of £20,000 and current liabilities of £40,000. What is the acid test ratio?

    • 1.5:1
    • 1:1
    • 2:1
    • 0.5:1

  11. Which action helps a business to improve its liquidity?

    • Reducing stock levels
    • Buying fixed assets
    • Increasing dividend payouts
    • Extending customer credit

  12. Which of these is the most liquid asset?

    • Cash at bank
    • Trade receivables
    • Property
    • Stock

  13. Why might a very high current ratio of 3:1 concern business managers?

    • Resources tied up inefficiently
    • Insolvency is imminent
    • Suppliers will stop deliveries
    • Overdraft fees will double

  14. If current liabilities rise while current assets stay constant, what happens to the current ratio?

    • It remains unchanged
    • It falls
    • It rises
    • It doubles

  15. What does a current ratio of 2:1 indicate about a business?

    • High gearing
    • Low efficiency
    • Poor profitability
    • Good liquidity

  16. What is a key limitation of the current ratio?

    • Excludes trade receivables
    • Ignores short-term liabilities
    • Excludes cash balances
    • Includes illiquid stock

  17. A current ratio of 1.2:1 and acid test of 0.7:1 indicates high levels of what?

    • Trade payables
    • Trade receivables
    • Stock
    • Cash balances

  18. Which transaction immediately improves a business's acid test ratio?

    • Purchasing equipment on credit
    • Paying off a long-term loan
    • Selling stock for cash
    • Buying stock on credit

  19. Which action reduces a business's current ratio if it is currently 1.5:1?

    • Selling inventory for cash
    • Receiving a bank loan
    • Buying stock on credit
    • Delaying supplier payments

  20. A business has current assets of £90,000 and current liabilities of £45,000. It then receives a £30,000 long-term loan as cash. What is the current ratio now?

    • 2.67:1
    • 2:1
    • 1.5:1
    • 3:1

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