The following ratios are available for Leer Inc. and Stable Inc. Current Ratio D
ID: 2598572 • Letter: T
Question
The following ratios are available for Leer Inc. and Stable Inc. Current Ratio Debt to Assets Ratio 75% 40% Earnings per Share $3.50 $2.75 Leer Inc. Stable Inc.1.5:1 Compared to Stable Inc., Leer Inc. has O higher liquidity and lower solvency, but profitability cannot be compared based on information provided. O higher liquidity, higher solvency, but profitability cannot be compared based on information provided. lower liquidity, higher solvency, and higher profitability. O higher liquidity, lower solvency, and higher profitability.Explanation / Answer
Solution: Option(A) is correct i.e. Higher liquidity and lower solvency, but profitability cannot be compared based on information provided.
Explanation: According to the information provided, different ratios explain the liquidity, solvency and profitability of both the companies. The Current ratio measures the liquidity. Higher the Current ratio more the liquidity. The debt to Assets ratio measures the solvency. Higher solvency is not always better. Since, there is no information provided relating to the outstanding shares of the companies, therefore, we cannot compare the profitability.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.