Question

Problem 3) (25 points) A few liquidity ratios for Bravo Company are shown below. What do these liquidity ratios reveal to you about Bravo Company's liquidity position? (15 points) If they were available to you, what additional ratios would you like to review in order to get a clearer picture of the strength or weakness of the Bravo Company? (10 points)
		2016	2015	2014	2013	2012	Ind. Average
	Current ratio	2.6	2.4	2.5	2.2	1.9	1.8
	Quick Ratio	0.9	0.8	1.0	0.9	1.0	0.9
	Cash Ratio	0.5	0.5	0.6	0.6	0.5	0.5

Answer 1

The liquidity ratios are financial ratios which tell us whether a company has sufficient current assets to meet its current liabilities when they come due.

The current ratio of the company is much higher than that of the industry , which indicates that the company has way more current assets than the industry to meet its current liabilities.

The quick ratio excludes inventory from current assets as they take only those assets which can be liquidated very easily. The difference between quick and current ratio of the company is huge. This shows that inventory forms the major part of the current asset and holding too much inventory is not good because it means that it is taking too long for the company to convert the inventory into cash. The latest ratio being less than 1 also indicates that there are not sufficient current assets to meet current obligation if inventory is not taken into consideration.

Cash ratio is the most liquid form of liquidity ratio as it takes into consideration only cash . This ratio is in terms with the industry. But also indicate that firm has less cash to meet its current obligation.

I would like to check solvency ratio, profitability ratio and activity ratio along with the one already mentioned.

Solvency ratio will be used to check whether the company can have a long life, by making sure that the company does not take huge amount of debt.

Activity ratio will tells us about the day to day functioning of the company. Where as profitability ratio will tell us about the amount of profit which the company is making.

All these ratios combined tell us about the strength and weakness about the company.