1. Liquidity ratios A liquid asset can be converted quickly to cash with little
ID: 2817217 • Letter: 1
Question
1. 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? Aa Aa Accounts receivable Cash O Inventories The most recent data from the annual balance sheets of Pellegrini Southern Inc. and Scramouche Opera Company are as follows Balance Sheet December 31st (Millions of dollars) Scramouche Pellegrini Scramouche Pellegrini Opera Company Southern Inc. Opera Company Southern Inc. Assets Current assets Liabilities Current liabilities Cash Accounts receivable Inventories $5,453 1,995 5,852 13,300 $3,505 Accounts payable $0 1,202 6,813 8,015 9,797 17,812 $0 1,283 Accruals 3,762 Notes payable 8,550 Total current liabilities Total current assets Net fixed assets Net plant and equipment 6,412 6,412 7,838 14,250 Long-term bonds 10,450 10,450 Total debt Common equity Common stock 3,860 2,078 5,938 23,750 3,088 1,662 4,750 19,000 Retained earnings Total common equity Total assets 23,750 19,000 Total liabilities and equity Pellegrini Southern Inc.s current ratio is and its quick ratio is :Scramouche Opera Company'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 Pellegrini Southern Inc. has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than 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 An increase in the quick ratio over time usually means that the company's liquidity position is improving and that the company is Pellegrini southern Inc. has a better ability to meet its short-term liabilities than Scramouche Opera Company Scramouche Opera Company liabilities managing its short-term assets well. An increase in the current ratio over time always means that the company's liquidity position is improving.Explanation / Answer
Inventories
1.3334, 0.7467, 1.6594, 0.9293
Options that are correct are : a, b
Pellegrini has a lower liquidity ratio, increase in current ratio can be due to stock up of inventories which may necessarily not be good
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