Have a Question ?

Home / Answered Questions / Other / 2-liquidity-ratios-a-liquid-asset-can-be-converted-quickly-to-cash-with-little-sacrifice-in-its-valu-aw329

(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?



-Accounts receivable

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
Assets Liabilities
Current assets Current liabilities
Cash $2,296 $1,476 Accounts payable $0 $0
Accounts receivable 840 540 Accruals 506 0
Inventories 2,464 1,584 Notes payable 2,869 2,700
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
Common equity
Common stock $1,625 $1,300
Retained earnings 875 700
Total common equity $2,500 $2,000
Total assets $10,000 $8,000 Total liabilities and equity $10,000 $8,000

Fitcom Corporation’s current ratio is ___ , and its quick ratio is ___; Zebra Paper Corporation’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 company’s current liabilities are increasing faster than its current assets, the company’s liquidity position is weakening.

-An increase in the quick ratio over time usually means that the company’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 company’s liquidity position is improving.

We have an Answer from Expert View Expert Answer

Expert Answer

Answer a. Inventories is generally considered to be the least liquid. Answer b. Zebra Paper Corporation: Current Ratio = Current Assets / Current Liabilities Current Ratio = $5,600 / $3,375 Current Ra
We have an Answer from Expert
Buy This Answer $6

-- OR --

Subscribe To View Unlimited Answers
Subscribe $20 / Month