Question

Calculate the current ratio for each of the following companies (round the ratio to two decimals). Identify

the company with the strongest liquidity position. (These companies represent competitors in the same

industry.)

Current Assets Current Liabilities

Edison . \( 79,040 \) 32,000

MAXT 104,880 76,000

Chatter . 45,080 49,000

TRU . 85,680 81,600

Gleeson 61,000 100,000

Short answer

Answer:

Edison company has strongest liquidity position.

Step-by-step solution

Definition of current

The current ratio is a ratio used to calculate a company's ability to fulfill its short-term obligations.

Calculation of current assets

Edison company:

$$\begin{gathered} \mathbf{Current}\mathbf{}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{Asset}}{\mathbf{Current}\mathbf{}\mathbf{Liabilities}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{79}\mathbf{,}\mathbf{040}}{\mathbf{\$}\mathbf{32}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{2}\mathbf{.}\mathbf{47}\mathbf{:}\mathbf{1} \end{gathered}$$

MAXT Company:

$$\begin{gathered} \mathbf{Current}\mathbf{}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{Asset}}{\mathbf{Current}\mathbf{}\mathbf{Liabilities}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{104}\mathbf{,}\mathbf{880}}{\mathbf{\$}\mathbf{76}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{1}\mathbf{.}\mathbf{38}\mathbf{:}\mathbf{1} \end{gathered}$$

Chatter Company:

$$\begin{gathered} \mathbf{Current}\mathbf{}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{Asset}}{\mathbf{Current}\mathbf{}\mathbf{Liabilities}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{45}\mathbf{,}\mathbf{080}}{\mathbf{\$}\mathbf{49}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{0}\mathbf{.}\mathbf{92}\mathbf{:}\mathbf{1} \end{gathered}$$

TRU Company:

$$\begin{gathered} \mathbf{Current}\mathbf{}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{Asset}}{\mathbf{Current}\mathbf{}\mathbf{Liabilities}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{85}\mathbf{,}\mathbf{680}}{\mathbf{\$}\mathbf{81}\mathbf{,}\mathbf{600}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{1}\mathbf{.}\mathbf{05}\mathbf{:}\mathbf{1} \end{gathered}$$

Gleeson Company:

$$\begin{gathered} \mathbf{Current}\mathbf{}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{Asset}}{\mathbf{Current}\mathbf{}\mathbf{Liabilities}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{61}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{00}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{0}\mathbf{.}\mathbf{61}\mathbf{:}\mathbf{1} \end{gathered}$$