Year end balance sheet data shown in thousands of dollars for
Year-end balance sheet data (shown in thousands of dollars) for Mama Mia Soup Company follow.
(a) Explain the significance of the quick ratio. How do decision makers use this ratio when interpreting a company’s financial statements?
(b) Compute Mama Mia’s quick ratio for both years. Based strictly on these ratios, in which year was the company’s liquidity position stronger?
(c) If the average quick ratio in Mama Mia’s industry is 1.2, is the company’s quick ratio better or worse than the industry norm?
(d) Identify at least three factors that could account for Mama Mia’s quick ratio being significantly different from the industry norm.
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