Question2 Shown below are liquidity ratios for several companies. Industry Compa

Question

Question2 Shown below are liquidity ratios for several companies. Industry Company #3 Company #4 Average Company #2 1.6:1 57 days 20 days Company #1 1.5:1 Current ratio Average collection period29 days Days in inventory 1.3:1 39 days 50 days 2.9:1 52 days 65 days 1.2:1 45 days 60 days 71 days For each of the following questions, choose the appropriate company by referring to the ratios shown above. Which company sold common shares recently and has not yet invested all of the cash raised from the share issue?

Explanation / Answer

(a) Answer: Company # 4

The current ratio of Company # 4 is the highest at 2.9:1 which means that the current assets of Company # 4 are 2.9 times its current liabilities. This could be due to the high cash balance from the sale of common shares.

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