Which of the following statement is incorrect? A. Ratio analysis involves analyzing financial statements to help appraise a firm’s financial position and strength. B. The current and quick ratios both help us measure a firm’s liquidity. The current ratio measures the relationship of the firm’s current assets to its current liabilities, while the quick ratio measures the firm’s ability to pay off short- term obligations without relying on the sale of inventories. C. If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase. D. If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

The incorrect statement is letter "D": If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

Explanation:

A Current Ratio tests the capacity of an organization to repay its short-term obligations. Which is important in determining a company's financial health. To find the company's current ratio divide the company's current assets by the current liabilities.

A Quick Ratio calculates the most liquid assets of the company in relation to a short-term obligation. The quick ratio is calculated by adding the company's cash and equivalents to the short term investments and its account receivable. The result is to be divided by the firm's current liabilities.

When the company's assets are sold on credit, it has an impact both in the current and quick ratio.

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