A.
Ratio analysis
It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.
Following are the two measures of liquidity:
- 1.
Current ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. - 2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and
accounts receivable . - 3.
Working capital : Total current assets minus total current liabilities are the working capital of a company.
To explain: The representation of “gift cards”, which is listed as current liabilities.
B.
To indicate: Whether the “credit card loans” can be considered as part of quick assets for Company C’s computation of the quick ratios.
C.
To compute: The current ratio for each company.
D.
To compute: The quick ratio for each company.
E.
To compare: The two companies results of current ratio and quick ratio.

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Chapter 10 Solutions
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