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A few liquidity ratios for Alpha Company are shown below. 1) What do these liquidity ratios reveal to you about Alpha Company
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Answer #1

The best indicator of the liquidity position of a company is the quick ratio as it is composed of all the liquid assets. The ideal quick ratio is 1:1 . The quick ratio of this company is very good and is also very close to the industrial average and also better at times. So, the company has a very good liquidity position.

The current ratio should be around 2, the current ratio is also very good indicating a good liquidity position of the company and very close to the industrial average.

The cash ratio should ideally be between 0.5 to 1, the cash ratio is also good .

In additional to these ratios, a another liquidity ratio is working capital ratio. Although the above ratios indicate that the liquidity position of the company is already very good but we may also calculate he working capital ratio for further clarity. The ideal ratio would be between 1.2 to 2.

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