Interpreting liquidity and activity ratios The table, shows key financial data for three firms that compete in the consumer products market: Procter & Gamble, Colgate-Palmolive, and Clorox. a. Calculate each of the following ratios for all three companies: current ratio, quick ratio, inventory turnover, average collection period, total asset turnover. b. What company is in the position of having greatest liquidity? c. Would you say that the three companies exhibit similar performance or quite different performance in terms of collecting receivables? Why do you think that might be? d. Which company has the most rapid inventory turnover? Which company appears to be least efficient in terms of total asset turnover? Are your answers to those questions a little surprising? If a company is best at inventory turnover and worst at total asset turnover, what do you think that means? Data Table Sales Cost of goods sold Receivable Inventory Total current assets Total current liabilities Total assets Procter & Gamble $65,236 32,957 4,726 4,792 25,572 28,895 117,043 Colgate-Palmolive $15,210 6.083 1.412 1,171 4.333 3,291 12.120 Clorox $5,879 3,225 519 507 1,546 2,044 4,572 (Note: All dollar values are in thousands.) Done a. For the three companies, the current ratios are: (Round to three decimal places.) Procter and Gamble Colgate-Palmolive Clorox Current ratio For the three companies, the quick ratios are: (Round to three decimal places.) Procter and Gamble Colgate-Palmolive Clorox Quick ratio For the three companies, the inventory turnover ratios are: (Round to three decimal places.) Procter and Gamble Colgate-Palmolive Clorox Inventory turnover For the three companies, the average collection periods are: (Round to three decimal places.) Procter and Gamble Colgate-Palmolive Clorox Average collection period For the three companies, the total asset tumover ratios are: (Round to three decimal places.) Procter and Gamble Colgate-Palmolive Clorox Total asset turnover b. What company is in the position of having greatest liquidity? (Select the best answer below.) A. Colgate-Palmolive OB. Clorox OC. Procter & Gamble OD. It is not possible to determine based on the information given. c. Would you say that the three companies exhibit similar performance or quite different performance in terms of collecting receivables? Why do you think that might be? (Select the best answer below.) A. Yes, all three firms collect on sales in about 30 days, with the differences in average collection periods between the shortest (P&G) and longest (Colgate) collection periods only a few days. The most likely explanation is that companies compete with each other, selling similar products to most of the same customers, so probably offer similar credit terms XB. No, all three firms collect on sales in about 90 days, with the differences in average collection periods between the shortest (P&G) and longest (Colgate) collection periods only seven days. The most likely explanation is that companies compete with each other, selling similar products to most of the same customers, so probably offer similar credit terms OC. Yes, all three firms collect on sales in about 30 days, with the differences in average collection periods between the shortest (P&G) and longest (Colgate) collection periods more than thirty days. The most likely explanation is that companies compete with each other, by selling different products to most of the same customers. OD. It is not possible to determine based on the information given. d. Which company has the most rapid inventory turnover? (Select the best answer below.) O A. Colgate-Palmolive OB Clorox C. Proctor & Gamble OD. It is not possible to determine based on the information given. Which company appears to be least efficient in terms of total asset tumover? (Select the best answer below.) O A. Colgate-Palmolive OB Clorox *C. Proctor & Gamble XD. It is not possible to determine based on the information given. If a company is best at inventory tumover and worst at total asset turnover, what do you think that means? (Select the best answer below.) O A. The most likely explanation is P&G employs much less fixed assets than its competitors. B. The most likely explanation is P&G employs more fixed assets than its competitors. OC. It is not possible to determine based on the information given