One way to measure whether a firm can meet its short-term debt obligations is to analyze the firm’s liquidity. Firms that are growing rapidly often find themselves in a liquidity crisis. Cisco Systems Inc. [CSCO] is a technology firm that manufactures and sells networking and communication products. Answer the following questions:
a. What have been Cisco’s current and quick ratios during the past three years?
b. What has been the trend in Cisco’s liquidity position during the threeyear time period?
c. Why is there a difference between the current ratio and the quick ratio?
d. How has Cisco compared with peer firms in its industry group with regard to liquidity as measured by the quick and current ratios? Be specific in your answer.
e. Compare the current and quick ratios of Cisco to those of Boeing Company [BA], a more mature defense company. What conclusions can you make about the ability of young technology firms such as Cisco to meet their short-term debt obligations as compared with more mature firms like those in the defense industry?