The following schedule summarizes the current assets reported in the 1997 balance sheets of Wendy’s and Reebok:

Wendy’s Reebok

(Dollars in millions)

Current Assets Cash and equivalents $ 234 $ 210 Notes receivable 14 —

Accounts receivable, net of allowance 67 562 Prepaids and other — 54 Inventories 36 564 Deferred income taxes 31 75 Total current assets 382 1,465 Noncurrent, total 1,560 291 Total assets $1,942 $1,756 Required

a. Identify the major differences between these two firms in their composition of current assets. Try to explain these differences in terms of the types of goods and services that each company produces.

b. On the basis of the liquidity ratios, which company appears to be more liquid?

c. Conduct a vertical analysis for each company. Do these results support your earlier conclusions in part b? Why?