1. We know that liquidity crises can result in solvency crises. How would you use the cash flow statement to assess the likelihood of a firm running into a liquidity crisis?

2. The ratio of current assets to current liabilities is a liquidity measure. Why is it a liquidity measure?

3. Some people assert that having a ratio of current assets to current liabilities greater than one is a good thing. What is the cost of having lots of current assets and fewer current liabilities? In your answer give example of both current assets and current liabilities.