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?
Identify four ratios that are used to measure how effectively a firm
manages its assets, and write out their equations.
If one firm is growing rapidly and another is not, how might this
distort a comparison of their inventory turnover ratios?
If you wanted to evaluate a firm’s DSO, with what would you com-
pare it?
What potential problem might arise when comparing different firms’
fixed assets turnover ratios?
A firm has annual sales of $100 million, $20 million of inventory,
and $30 million of accounts receivable. What is its inventory
turnover ratio? (5) What is its DSO based on a 365-day year?
