Financial Ratios 1. Liquidity ratios . Edison, Stagg, and Thornton have the foll
ID: 2377396 • Letter: F
Question
Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
Explanation / Answer
current ratio = current assets/current liabilities = (cash+inventory+A/c receivables)/ (A/c payable+Notes payable+accrued payables+long term liabilities )
Quick ratio =( current assets - inventory)/ current liabilities
Edison :
current ratio = (4000+1000+2000)/(200+3100+300+3800) = 0.946
Quick ratio = (4000+2000)/(200+3100+300+3800) = 0.81
similarly,
Stagg:
current ratio = 0.946
Quick ratio = 0.676
Thornton:
current ratio = 1.08
Quick ratio = 0.54
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