ZuoTi.Pro
Question

Describe a firms liquidity position if its current ratio is less than one Describe its net working capital in terms of obligations and ability service

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

If Current Assets is less than current liabilities then current ratio is less than 1 .The firm finances its fixed assets through current liabilities and long term debt. The liquidity of firm is high and it is cash rich.
Net Working capital is negative when current ratio is less than one and hence current assets is easily finance by current liabilities but it reduces the capacity of firm to meet its short term obligations.

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

0 0
Add a comment
Know the answer?
Add Answer to:
Describe a firm's liquidity position if its current ratio is less than one Describe its net...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Liquidity Ratios

    Which of the following statements are true? Check all that apply.Jing Foodstuffs Corporation has a better ability to meet its short-term liabilities than N&B Equipment Company.If a company’s current liabilities are increasing faster than its current assets, the company’s liquidity position is weakening.An increase in the quick ratio over time usually means that the company’s liquidity position is improving and that the company is managing its short-term assets well.Compared to N&B Equipment Company, Jing Foodstuffs Corporation has less liquidity and a lower...

  • A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities...

    A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. The industry average current ratio is 2.0 and quick ratio is 1.5. (3 points each) 7.1 What are the firm's current ratio and quick ratio? 7.2 What is the firm's liquidity position? 7.3 What is the firm's net working capital? 7.4 Why is working capital important to a business?

  • question. 1) 1) Tf a firm's cash coverage ratio is greater than its times interest earned...

    question. 1) 1) Tf a firm's cash coverage ratio is greater than its times interest earned ratio, then the: A) firm has a high degree of liquidity. B) firm has no lease obligations. C) firm's assets are not fully depreciated. D) firm has very little long-term debt.

  • Working Capital and Current Ratio The following data (in thousands) were taken from recent financial statements...

    Working Capital and Current Ratio The following data (in thousands) were taken from recent financial statements of Under Armour, Inc.: December 31 Year 2 Year 1 Current assets $1,549,399 $1,498,763 478,810 Current liabilities 421,627 a. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. Enter working capital amounts in thousands of dollars. Round "current ratio answers to two decimal places. December 31 Year 2 Working capital Current ratio b. What conclusions concerning...

  • 31. The following financial statement items are shown for J&T Manufacturing. Net sales $840,00 Cost of...

    31. The following financial statement items are shown for J&T Manufacturing. Net sales $840,00 Cost of goods sold Insurance expense 360,000 28,000 120,000 Total operating expenses Net income 56,000 Calculate the common-size percentage for gross margin. a. 0.8% b. 11.6% c. 42.8% d. 57.1% 32. A firm's ability to pay its obligations as they come due and to meet any unforeseen needs for cash is called a. current ratio. b. liquidity. c. working capital. d. accounts receivable turnover. 33. Which...

  • Evans Inc. had current liabilities at April 30 of $79,900. The firm's current ratio at that...

    Evans Inc. had current liabilities at April 30 of $79,900. The firm's current ratio at that date was 19. Required: a. Calculate the firm's current assets and working capital at April 30. b. Assume that management paid $14.400 of accounts payable on April 29. Calculate the current ratio and working capital at April 30 as if the April 29 payment had not been made. (Round "Current ratio" answer to 2 decimal places.) c. Identify the changes, if any, to working...

  • Working capital is considered to be one of the prime indicators of liquidity. True False Question...

    Working capital is considered to be one of the prime indicators of liquidity. True False Question 10 (1 point) The operating cash flow/total debt ratio is one that indicates a firm's ability to meet its current maturities of debt. True False Question 11 (1 point) Management should not use the statement of cash flows for which of the following purposes? To determine cash flow from financing activities To determine the balance in accounts receivable To determine cash low from investing...

  • Ritter Company has a current ratio of 3.00 on December 31. On that date the company's current assets are as follows:

    Working Capital and Short-Term Liquidity Ratios Ritter Company has a current ratio of 3.00 on December 31. On that date the company's current assets are as follows: Cash$32,000Short-term investments49,300Accounts receivable (net)170,000Inventory200,000Prepaid expenses11,600Current assets$462,900Ritter Company's current liabilities at the beginning of the year were $150,000 and during the year its operating activities provided a cash flow of $60,000. a. What are the firm's current liabilities on December 31? b. What is the firm's working capital on December 31? c. What is the quick ratio on December...

  • Liquidity ratios

    1. Liquidity ratiosA liquid asset can be converted quickly to cash with little sacrifice in its value.Which of the following asset classes is generally considered to be the least liquid?Accounts receivableInventoriesCashPoints:1 / 1Close ExplanationExplanation:In the event of a liquidation, inventories tend to recover the least amount of their stated value. Cash will not lose value, and accounts receivable are likely to retain their value if there are no bad debts. That is why the quick ratio adjusts current assets by...

  • Which of the following statements is true? A. The use of the current ratio does not...

    Which of the following statements is true? A. The use of the current ratio does not make it possible to compare companies of different sizes. B. A current ratio of 1.2 to 1 indicates that a company’s current assets are less than its current liabilities. C. All companies, regardless of size, should have a current ratio of at least 2:1. D. The current ratio is a more dependable indicator of liquidity than working capital.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
Active Questions
ADVERTISEMENT