L4M4 Exam Dumps | The procurement manager has received the following data from the supplier's accounts to facilitate the

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Question 50/105

The procurement manager has received the following data from the supplier's accounts to facilitate the calculation of the supplier's current ratio:
Current Assets: Stock $200; Debtors $60; Cash $40; Total $300
Short Term Liabilities: Bank overdraft $150
Which calculation will the procurement manager use to find out the current ratio?

A. (300 - 200) ÷ 150

B. 300 ÷ 150

C. (300 - 200 - 150) × 100

D. (300 ÷ 150) × 100

Correct Answer: B

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. It is calculated by dividing current assets by current liabilities. In this case:
Current Assets = $300
Current Liabilities = $150
Current Ratio = 300 ÷ 150 = 2.0
This indicates that the supplier has twice as many current assets as current liabilities, suggesting good short- term financial health.
Reference:
CIPS Level 4 Diploma in Procurement and Supply, L4M4 Study Guide, Section 2.3: Financial Appraisal of Suppliers

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