(Solved): 2. Liquidity Ratios A Liquid Asset Can Be Converted To Cash Quickly Without Significantly Impacting ...
2. Liquidity ratios
A liquid asset can be converted to cash quickly without significantly impacting the assetâ€™s value.
Which of the following asset classes is generally considered to be the most liquid?
The most recent data from the annual balance sheets of N&B Equipment Company and Scramouche Opera Company are as follows:
Balance Sheet December 31st31st (Millions of dollars)
|Scramouche Opera Company||N&B Equipment Company||Scramouche Opera Company||N&B Equipment Company|
|Current assets||Current liabilities|
|Total current assets||$1,400||$900||Total current liabilities||$844||$675|
|Net fixed assets||Long-term bonds||1,031||825|
|Net plant and equipment||1,100||1,100||Total debt||$1,875||$1,500|
|Total common equity||$625||$500|
|Total assets||$2,500||$2,000||Total liabilities and equity||$2,500||$2,000|
N&B Equipment Companyâ€™s quick ratio is __ , and its current ratio is__; Scramouche Opera Companyâ€™s quick ratio is __, and its current ratio is __ .
Which of the following statements are true? Check all that apply.
-Scramouche Opera Company has a better ability to meet its short-term liabilities than N&B Equipment Company.
-If a companyâ€™s current liabilities are increasing faster than its current assets, the companyâ€™s liquidity position is weakening.
-If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations.
-Compared to N&B Equipment Company, Scramouche Opera Company 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.