Liquidity Ratios The most recent data from the annual balance sheets of Fitcom C

Question

Liquidity Ratios

The most recent data from the annual balance sheets of Fitcom Corporation and Jing Foodstuffs Inc. are as follow:s Balance Sheet December 31st (Millions of dollars) Fitcom Fitcom Jing Foodstuffs Corporation Jing Foodstuffs Corporation Inc. Inc Assets Liabilities Current assets Current liabilities Cash Accounts receivable Inventories $2,583 945 2,772 6,300 $1,660 Accnts payable $0 570 3,227 3,797 4,640 8,437 $0 608 1,782 4,050 Accruals Notes payable Total current assets Net fixed assets Net plant and equipment 3,037 3,037 3,713 6,750 Total current liabilities Long-term bonds 4,950 4,950 Total debt Common equity 1,828 985 2,813 11,250 Common stock 1,463 787 2,250 9,000 Retained earnings Total common equity Total liabilities and equity Total assets 11,250 9,000 Fitcom Corporation's current ratio is and its quick ratio is and its quick ratio is ; Jing Foodstuffs Inc.'s current ratio is . Note: Round your values to four decimal places Which of the following statements are true? Check all that apply Fitcom Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Jing Foodstuffs Inc.. A current ratio of 1 indicates that the book value of the company's current assets is equal to the book value of its current liabilities 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 Fitcom Corporation has a better ability to meet its short-term liabilities than Jing Foodstuffs Inc An increase in the current ratio over time always means that the company's liquidity position is improving

Explanation / Answer

Current Ratio (CR) = Total Current Assets / Total Current Liabilities

CR (Jing Foodstuffs Inc.) = 6300 / 3797 = 1.6592

CR (Fitcom Corporation) = 4050 / 3037 = 1.3335

Quick Ratio (QR) = Total Current Assets – Inventories / Total Current Liabilities

QR (Jing Foodstuffs Inc.) = (6300 – 2772) / 3797 = 3528 / 3797 = 0.9292

QR (Fitcom Corporation) = (4050 – 1782) / 3037 = 2268 / 3037 = 0.7468

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