Question

Ch 4 - Homework Navigation PAD Finish attempt... Question 2 Not complete Marked out of 3.00 P Flag question Evaluating Firm Liquidity The following financial information is taken from the balance sheets of the Drucker Company and the Ito Company Drucker to Current assets $250.000 550.000 Current abilities 100.000 15.000 Calculate the current ratio for each company Round answers to two decimal places, when appropriate. Drucker 0. ito 0 Which firm has a higher level of liquidity? Check Previous Save Answers L DELL

Answer 1

Current Ratio : The current ratio is one of the liquidity ratio which measures the firm's ability to meet its short-term obligations. It is calculated by dividing the Current Assets with Current Liabilities. The higher the ratio - The higher the firm's efficiency. It is interpreted as the more the current assets, it can service better the current liabilities. So, when we compare the current ratio of two companies / firm's, the one which has highest current ratio has higher level of liquidty. Current Ratio = Current Assets Current Liabilities Particulars A. Current Assets B. Current Liabilities Current Ratio (A/B) $ $ Drucker 2,50,000 1,00,000 2.50 $ $ Ito 50,000 15,000 3.33 Therefore, the Ito Company has higher liquidity.