Question

The following information is available for Morgan Company and Parker Company, similar firms operating in the same industry. Write a half-page report comparing Morgan and Parker using the available information. Your discussion should include their ability to meet current obligations and to use current assets efficiently.

	Morgan	Parker
	2017	2016	2015	2017	2016	2015
Current ratio	1.7	1.6	2.1	3.2	2.7	1.9
Acid test ratio	1.0	1.1	1.2	2.8	2.5	1.6
Accounts receivable turnover	30.5	25.2	29.2	16.4	15.2	16.0
Merchandise inventory turnover	24.2	21.9	17.1	14.5	13.0	12.6
Working capital	\(70,000	\)58,000	\(52,000	\)131,000	\(103,000	\)78,000

Short answer

Comparing the liquidity

XX/XX/XXX

X Road, New York

Comparing current ratio: Parker is more efficient.

Comparing acid test ratio: Parker is more efficient.

Comparing accounts receivable turnover:Both are efficient.

Merchandise inventory turnover: Both are efficient.

Working capital: Both are efficient.

Step-by-step solution

Definition of Liquidity

Liquidity can be defined as the measure to determine the potentiality to pay the current obligation as they become due. It is measured using the current ratio and the acid test ratio.

Report onthe ability to meet the current obligation

Comparison of the liquidity: Parker is more efficient in terms of liquidity because the current ratio and acid test ratio of parker are increasing; at the same time, it is decreasing for Morgan. It means that Parker is more efficient in paying off its short-term liability and has higher liquid assets that can be easily converted into cash.

Use of current assets: Both the business entity proves to be efficient in managing their current assets because the accounts receivable ratio, inventory turnover ratio,and working capital for both entities are increasing. However, Morgan company can manage its current assets more efficiently than Parker.