The table below shows two liquidity ratios calculated for Henden Ltd for the past two years: multicolumn(1)(|c|)( Ratio ) & 2022 & 2021 Current ratio & 1.9: & 1.6: & 1 & 1 Quick (acid) & 0.8 : & 1.1: ratio & 1 & 1 Which of the following statements is an incorrect interpretation of these ratios Different types of businesses may require different current ratios, but the minimum acceptable level for a quick ratio is generally 1: 1 . In 2022, for every mathrm(E) 1 of current liabilities, the company has £ 1.9 of current assets and E0.80 of quick assets. For a more stringent test of liquidity, inventory is excluded from the quick ratio calculation. The business has sufficient liquid assets in 2022 to meet its short-term obligations.

## Step 1: Understanding the ProblemThe problem is about interpreting the quick ratio (Acid-Test Ratio) and the current ratio provided for a company, Henden Ltd, for two years - 2022 and 2021. These ratios are critical indicators used to analyze the company's short-term liquidity position. The quick ratio is calcuated excluding inventory from current assets, given inventories can take time be converted into cash. On the other hand, the current ratio takes into account all of the company's current assets. Traditionally, a quick ratio greater than or equal to 1 and the current ratio more significant than or equal to 2 is considered ideal. Now, let's look at the answer alternatives one by one:# Explanation:## Step 2: Analysing the Statements### Statement 1: A minimum acceptable level for a quick ratio is generally 1:1. Therefore, statement 1 is generally correct.### Statement 2:On looking at the ratios given in the problem, in 2022, for every of current liabilities, the company has of current assets and of quick assets. Therefore, statement 2 is correct. ### Statement 3:The quick ratio excludes the inventory because it's not quickly convertible to cash. This statement appears to be correct.### Statement 4:Although having a current ratio of 1.9 might suggest the company can meet its short-term obligations, the quick ratio of 0.8 indicates that it might have problems meeting its obligations without selling its inventory. Therefore, statement 4 seems to be incorrect. ### Statement 5:A quick ratio lesser than 1 (0.8 in 2022 vs 1.1 in 2021), although not always, could potentially spell financial trouble, especially when compared to the previous year (2021), indicating a decline in the liquid assets of the company. Therefore, it could indeed be a cause of concern for the company's short stakeholders, so Statement 5 holds true.