2. Liquidity ratios

A liquid asset can be converted quickly to cash with little sacrifice in its value.

Which of the following asset classes is generally considered to be the least liquid?

Cash

Inventories

Accounts receivable

The most recent data from the annual balance sheets of Fitcom Corporation and Zebra Paper Corporation are as follows:

Balance Sheet December 31st31st (Millions of dollars)

	Zebra Paper Corporation	Fitcom Corporation		Zebra Paper Corporation	Fitcom Corporation
Assets			Liabilities
Current assets			Current liabilities
Cash	$2,296	$1,476	Accounts payable	$0	$0
Accounts receivable	840	540	Accruals	506	0
Inventories	2,464	1,584	Notes payable	2,869	2,700
Total current assets	$5,600	$3,600	Total current liabilities	$3,375	$2,700
Net fixed assets			Long-term bonds	4,125	3,300
Net plant and equipment	4,400	4,400	Total debt	$7,500	$6,000
			Common equity
			Common stock	$1,625	$1,300
			Retained earnings	875	700
			Total common equity	$2,500	$2,000
Total assets	$10,000	$8,000	Total liabilities and equity	$10,000	$8,000

Fitcom Corporations current ratio is , and its quick ratio is ; Zebra Paper Corporations current ratio is , and its quick ratio is . Note: Round your values to four decimal places.

Which of the following statements are true? Check all that apply.

Zebra Paper Corporation has a better ability to meet its short-term liabilities than Fitcom Corporation.

If a companys current liabilities are increasing faster than its current assets, the companys liquidity position is weakening.

An increase in the quick ratio over time usually means that the companys liquidity position is improving and that the company is managing its short-term assets well.

Compared to Fitcom Corporation, Zebra Paper Corporation has less liquidity and a lower reliance on outside cash flow to finance its short-term obligations.

An increase in the current ratio over time always means that the companys liquidity position is improving.