Given below is information for Sharp Cororation and Terra Computers, Inc. at the
ID: 2376481 • Letter: G
Question
Given below is information for Sharp Cororation and Terra Computers, Inc. at the end of 2012
(In millions) Sharp Terra
Cash and cash $1,100 $300
equivalents
Short-term 100 900
investments/marketable
securities
Accounts, notes, and 11,700 12,400
other receivables, net
Inventories 1,200 1,000
Prepaid expenses 1,400 600
Total current assets $15,500 $15,200
Current liabillities $5,000 $4,000
Other liablities $2,300 $12,000
Stockholders' equity $5,300 $7,300
1) Using the information provided above, compute the following for each company at December 31, 2012:
A. Current ratio
B. Acid-test ratio
2) Comment briefly on the liquidity of each of these two companies. Which appears to be more liquid?
3) What other ratios would help you to more fully assess the liquidity of these companies?
Explanation / Answer
Hi,
Please find the answer as follows:
Part A:
Part B:
Terra is more liquid. Both the companies can be considered as highly liquid as they have a current ratio of greater than and a quick ratio of greater than 1.
Part C:
Accounts Receivables and Inventory Turnover ratios can be used to evaluate short term liquidity of the company. Cash ratio can also be used to evaluate the firm's liquidity.
Thanks.
Formula Sharp Terra Current Ratio Current Assets/Current Liabilties 3.1 3.8 Acid Test Ratio Quick Assets/Current Liabilities 2.58 3.4
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