3. An analyst is comparing liquidity ratios for the following two companies. The analyst concludes that company 1 has higher liquidity than company 2 because company 1 has a higher current ratio and because company 2 has very little cash on the balance sheet.
Company 1
	Cash	70		Payables	240
	Inventory	250		Short term debt	150
	Receivables	140
Company 2
	Cash	20		Payables	240
	Inventory	120		Short term debt	150
	Receivables	250

Is the analyst correct ?

What other variables do you need to consider in order to draw this conclusion ?

Answer rating: 100% (QA)

Detailed Explanation The analysts conclusion is based on comparing the liquidity ratios particularly the current ratio of two companies The current ratio is calculated by dividing a companys current a... View the full answer