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 |
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
b. Suppose Thornton is using FIFO for inventory valuation and Edison is using LIFO.
Comment on the comparability of information between these two companies.
c. If all short-term notes payable are due on July 11 at 8 a.m., comment on each company’s ability to settle its obligation in a timely manner.