12. Consider the common-size balance sheets in Exhibit 1 for Company A, Company B, as well as the industry average. Which statement is correct?

Exhibit 1: Balance Sheet and Industry Average Company A

Company B

Industry Average ASSETS Current assets Cash and cash equivalents 5 5 7 Marketable securities 5 0 2 Accounts receivable, net 5 15 12 Inventories 15 20 16 Prepaid expenses 5 15 11 Total current assets 35 55 48 Company A Company B Industry Average Property, plant, and equipment, net 40 35 37 Goodwill 25 0 8 Other assets 0 10 7 Total assets 100 100 100 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable 10 10 10 Short-term debt 25 10 15 Accrued expenses 0 5 3 Total current liabilities 35 25 28 Long-term debt 45 20 28 Other non-current liabilities 0 10 7 Total liabilities 80 55 63 Total shareholders’ equity 20 45 37 Total liabilities and shareholders’
equity 100 100 100 A. Company A has below-average liquidity risk.
B. Company B has above-average solvency risk.
C. Company A has made one or more acquisitions.