North Bank is analyzing Belle Corp.’s financial statements for a possible extension of credit. Belle’s quick ratio is significantly better than the industry average. Which of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle’s credit-worthiness?

  1. Fluctuating market prices of short-term investments may adversely affect the ratio.
  2. Increasing market prices for Belle’s inventory may adversely affect the ratio.
  3. Belle may need to sell its available-for-sale investments to meet its current obligations.
  4. Belle may need to liquidate its inventory to meet its long-term obligations.