Compare the following two firms and decide which has more liquidity. Explain why.

Firm 1 Firm 2

Cash $10,000 Cash $8,000

Inventory $3,000 Inventory $6,000

Accounts Receivable $2,500 Accounts Receivable $3,500

Net Fixed Assets $15,000 Net Fixed Assets $13,000

Accounts Payable $7,500 Accounts Payable $3,500

Notes Payable $4,000 Notes Payable $11,000

Long-Term Debt $7,000 Long-Term Debt $9,000

Common Equity $12,000 Common Equity $7,000