1. There are two firms, UNO Inc. and DOS Co., in the same industry. One of the firms, UNO, has a higher and increasing current ratio. UNO also has a low and falling inventory turnover and a very high and increasing average collection period.(Note: DOS has a stable current ratio and inventory turnover, and long but stable average collection period). Both firms have very little cash. The data for UNO and DOS can be summarized as:

Company	Current Ratio	Ave. Collection Period	Inventory Turnover	Cash
UNO	Higher; increasing	Very long; increasing	Low and falling	little
DOS	Lower; stable	Long; Stable	Higher	little

Which of the following statements about the relative liquidity of the firms is most plausable?

• UNO has better liquidity because of better inventory management
• DOS has lower liquidity because the higher inventory turnover ratio likely means the firm is holding unsalable inventory
• UNO has better liquidity as evidenced by the higher current ratio
• DOS has better liquidity because the current ratio is more stable
• UNO has lower liquidity as the higher current ratio likely results from the build up of low quality current assets