Identify the company with the strongest liquidity position. (These companies represent competitors in the same industry.)

Exercise 3-11 Computing and analyzing the current ratio LO A2

1. Compute the current ratio for each of the following companies. (Round your answers to 2 decimal places.)
 

 
2. Identify the company with the strongest liquidity position. (These companies represent competitors in the same industry.)
 

    Edison
    MAXT
    Chatter
    TRU
    Gleeson


Answer

Edison

Explanation

Current Ratio	=	Current Assets
		Current Liabilities

 
Analysis: Edison is in the strongest liquidity position. It has about $1.87 of current assets for each $1 of current liabilities. The only potential concern is that Edison may be carrying too much in current assets that could be better spent on more productive assets (note that its remaining competitors’ current ratios range from 1.03 to 0.45).