Cambridge Savings Bank is a good deal smaller than GM, with only $2 billion in total assets as compared with GM’s total assets of over $166 billion. While GM has a reasonable amount of cash and net receivables, its assets are dominated by inventory, long-term investments, and property in the form of plants and equipment. The assets of Cambridge Savings Bank are overwhelmingly dedicated to loans. This heavy investment in loans means that the Cambridge Bank’s current ratio, current assets divided by current liabilities, is much lower than GM’s. Also, Cambridge Savings Bank is much more highly leveraged than GM, with a capital ratio of only 8.7% compared with GM’s 25.6%. Do these differences mean that Cambridge Savings Bank is more likely to face financial difficulties than GM?

Answer rating: 100% (QA)

The differences in current ratio and capital ratio between Cambridge Savings Bank and GM indicate different financial positions and risk profiles Howe... View the full answer