Xian Catering Ltd., Co. is a China-based company principally engaged in the provision of catering services and the industrialized food production and sales business. The catering services include the provision of cold dishes, hot dishes, pasta, dumplings, roast ducks and soups. The industrialized food production and sales business include the provision of bakery baking products, meat products, quick-frozen foods, instant foods and semifinished products. The Company mainly conducts its business in the Northwest of China. The company with the name China Quanjude also operates in the food catering industry. The company is best known for its Beijing roast duck and its longstanding culinary heritage since its establishment in 1864 in Beijing, China. Below is a table that shows the two companies liquidity and solvency ratios.

Required:

1. Are the two companies perform well in the liquidity ratios? (6 marks)

*You should first discuss the factors that may determine a catering companys optimal liquidity level, and then you may comment on the two companies liquidity level.

2. Are the two companies perform well in the solvency ratio? (6 marks)

*Hint: You should first discuss the factors that may determine a catering companys optimal solvency level, and then you may comment on the two companies solvency level.

Panel A: Current Ratio Xi'an Catering Co. Ltd. China Quanjude 2015 1.02 2.51 2016 1.16 2.53 2017 1.60 2.68 2018 1.04 2.93 2019 0.73 2.18 Panel B: Quick Ratio Xi'an Catering Co. Ltd. China Quanjude 2015 0.94 2.31 2016 1.07 2.38 2017 1.51 2.54 2018 0.97 2.74 2019 0.64 1.96 Panel C: Equity Multiplier Xi'an Catering Co. Ltd. China Quanjude 2015 1.60 3.51 2016 1.85 3.29 2017 1.63 3.24 2018 1.10 3.58 2019 1.27 3.55