2. Liquidity ratios

A liquid asset can be converted to cash quickly without significantly impacting the assets value.

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

Cash

Inventories

Accounts receivable

The most recent data from the annual balance sheets of Pellegrini Southern Corporation and Jing Foodstuffs Corporation are as follows:

Balance Sheet December 31st31st (Millions of dollars)

	Jing Foodstuffs Corporation	Pellegrini Southern Corporation		Jing Foodstuffs Corporation	Pellegrini Southern Corporation
Assets			Liabilities
Current assets			Current liabilities
Cash	$4,879	$3,136	Accounts payable	$0	$0
Accounts receivable	1,785	1,148	Accruals	1,076	0
Inventories	5,236	3,366	Notes payable	6,096	5,737
Total current assets	$11,900	$7,650	Total current liabilities	$7,172	$5,737
Net fixed assets			Long-term bonds	8,765	7,013
Net plant and equipment	9,350	9,350	Total debt	$15,937	$12,750
			Common equity
			Common stock	$3,453	$2,763
			Retained earnings	1,860	1,487
			Total common equity	$5,313	$4,250
Total assets	$21,250	$17,000	Total liabilities and equity	$21,250	$17,000

Pellegrini Southern Corporations current ratio is , and its quick ratio is ; Jing Foodstuffs 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.

Pellegrini Southern Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Jing Foodstuffs Corporation.

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

If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations.

Pellegrini Southern Corporation has a better ability to meet its short-term liabilities than Jing Foodstuffs Corporation.

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