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2. Liquidity ratios Most firms borrow money to finance some of their assets, and most will choose to borrow some long-term funds and some short-term

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2. Liquidity ratios Most firms borrow money to finance some of their assets, and most will choose to borrow some long-term funds and some short-term funds. Which group of lenders would put greater emphasis on a firm's liquidity ratio when evaluating a potential borrower? Long-term lenders Short-term lenders The most recent data from the annual balance sheets of Free Spirit Industries Corporation and LeBron Sports Equipment Corporation are as follows: Balance Sheet December 31" ( Millions of dollars) LeBron Sports Free Spirit LeBron Sports Free Spirit Equipment Industries Equipment Industries Corporation Corporation Corporation Corporation Assets Liabilities Current Current assets liabilities Cash $861 $553 Accounts $0 $0 payable Accounts 315 203 Accruals 190 0 receivableBalance Sheet December 31" (Millions of dollars) LeBron Sports Free Spirit LeBron Sports Free Spirit Equipment Industries Equipment Industries Corporation Corporation Corporation Corporation Assets Liabilities Current Current assets liabilities Cash $861 $553 Accounts $0 $0 payable Accounts 315 203 Accruals 190 0 receivable Inventories 924 594 Notes 1,075 1,012 payable Total current $2,100 $1,350 Total current $1,265 $1,012 assets liabilities Net fixed Long-term 1,547 1,238 assets bonds Net plant 1,650 1,650 Total debt $2,812 $2,250 and equipment Common equityCommon equity Co mmon $6 1:] $483 stock Retained 320 262 earnings Total $933 $750 corn man equity Total assets $3,?50 $3,000 Total $3,?50 $3,000 liabilities and equity Free Spirit Industries Corporation's quick ratio is V , and its current ratio is V ; LeBron Sports Equipment Corporation's quick ratio is V , and its current ratio is V . Free Spirit Industries Corporation's quick ratio is V , and its current ratio is V ; Lean Sports Equipment Corporation's quick ratio is v , and its current ratio is v . Which of the following statements are true? Check all that apply. C] Free Spirit Industries Corporation has less liquidity but also a greater reliance on outside cash flow to nance its short-term obligations than LeBron Sports Equipment Corporation. C] A current ratio of 1 indicates that the book value of the company's current assets is equal to the book value of its current liabilities. C] 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-berm obligations. C] Free Spirit Industries Corporation has a better ability to meet its short-term liabilities than LeBron Sports Equipment Corporation. An increase in the current ratio over time always means that the company's liquidity position is improving

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