Question

IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution and sale of a variety of food products. Industry averages are derived from Troy's The Almanac of Business and Industrial Financial Ratios. Following are the 2011 and 2010 comparative balance sheets for IGF. (The financial data we use are from actual financial statements of a well-known corporation, but the company name used is fictitious and the numbers and dates have been modified slightly.)

Liquidity refers to a company's cash position and overall ability to obtain cash in the normal course of business. A company is said to be liquid if it has sufficient cash or is capable of converting its other assets to cash in a relatively short period of time so that currently maturing debts can be paid.

Required:
1. Calculate the current ratio for IGF for 2011. The average ratio for the stocks listed on the New York Stock Exchange in a comparable time period was 1.5. What information does your calculation provide an investor?
2. Calculate IGF's acid-test or quick ratio for 2011. The ratio for the stocks listed on the New York Stock Exchange in a comparable time period was .80. What does your calculation indicate about IGF's liquidity?



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  • CreatedJuly 02, 2013
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