(Solved): 2. Liquidity Ratios A Liquid Asset Can Be Converted Quickly To Cash With Little Sacrifice In Its Val...
2. Liquidity ratios
A liquid asset can be converted quickly to cash with little sacrifice in its value.
Which of the following asset classes is generally considered to be the least liquid?
The most recent data from the annual balance sheets of Fitcom Corporation and Zebra Paper Corporation are as follows:
Balance Sheet December 31st31st (Millions of dollars)
|Zebra Paper Corporation||Fitcom Corporation||Zebra Paper Corporation||Fitcom Corporation|
|Current assets||Current liabilities|
|Total current assets||$5,600||$3,600||Total current liabilities||$3,375||$2,700|
|Net fixed assets||Long-term bonds||4,125||3,300|
|Net plant and equipment||4,400||4,400||Total debt||$7,500||$6,000|
|Total common equity||$2,500||$2,000|
|Total assets||$10,000||$8,000||Total liabilities and equity||$10,000||$8,000|
Fitcom Corporationâ€™s current ratio is ___ , and its quick ratio is ___; Zebra Paper Corporationâ€™s current ratio is___, and its quick ratio is___. Note: Round your values to four decimal places.
Which of the following statements are true? Check all that apply.
-Zebra Paper Corporation has a better ability to meet its short-term liabilities than Fitcom Corporation.
-If a companyâ€™s current liabilities are increasing faster than its current assets, the companyâ€™s liquidity position is weakening.
-An increase in the quick ratio over time usually means that the companyâ€™s liquidity position is improving and that the company is managing its short-term assets well.
-Compared to Fitcom Corporation, Zebra Paper Corporation has less liquidity and a lower reliance on outside cash flow to finance its short-term obligations.
-An increase in the current ratio over time always means that the companyâ€™s liquidity position is improving.
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