The following selected liquidity and solvency ratios are available for

The following selected liquidity and solvency ratios are available for two companies operating in the petroleum industry:

Instructions
Assume that you are the credit manager of the local bank. Answer the following questions, using relevant ratios to justify your answer.
(a) Both Petro-Zoom and Sun-Oil have applied for a short-term loan from your bank. Which of the two companies is more liquid and should get more consideration for a short-term loan? Explain.
(b) Both Petro-Zoom and Sun-Oil have applied for a long-term loan from your bank. Are you concerned about the solvency of either company? Explain why or why not.

Solvency
Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that the company X is no longer able to settle its noncurrent financial...


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Sun-Oil 1.2:1 13 times 10 times 3996 24 times Petro-Zoom In Current ratio Recetvables turnover Inventory turnover Debt to total assets Times interest earned 1.3:1 12 times 16 times 41% 21 times 1.4:1 13 times 19 times 34% 26 times