What are some characteristics of a liquid asset? Give some examples.
What two ratios are used to analyze a firm’s liquidity position?
Write out their equations.
Why is the current ratio the most commonly used measure of short-
term solvency?
Which current asset is typically the least liquid?
A company has current liabilities of $500 million, and its current ratio
is 2.0. What is its level of current assets? ($1,000 million) If this firm’s
quick ratio is 1.6, how much inventory does it have? ($200 million)
