Question

In December 2015​, Apple had cash of $ 38.53 ​billion, current assets of $ 76.36 ​billion, and current liabilities of $ 76.41 billion. It also had inventories of $ 2.45 billion. a. What was​ Apple's current​ ratio? b. What was​ Apple's quick​ ratio? c. In January 2016​, ​Hewlett-Packard had a quick ratio of 0.66 and a current ratio of 0.90. What can you say about the asset liquidity of Apple relative to​ Hewlett-Packard?

Answer 1

Answer:

a) Current Ratio = 0.99

b) Quick Ratio = 0.96

c)  

The Current Ratio is a liquidity measure that shows the ratio between current asset and current debt obligations. It tells how many dollars of current asset are per dollar of current debts, that gives an idea of the company`s ability to perform its debts.    

The Quick Ratio is also a liquidity indicator that measures the capacity of a company, using its most liquid assets, to pay its current debt at maturity. The inventory, although it is a current asset, is not considered, since it cannot be converted into cash in a very short term.

The difference between the Quick Ratio and the Current Ratio, implies that while both are measures of the company's ability to pay its debts, the quick ratio also tells how much the company depends on its inventory to get that objective.

In Apple´s and Hewlett-Packard´s case we can say that Apple is better covert, but not for too much, because of their current ratio. And, because of its quick ratio, Apple doesn't depend on its inventory as much as Hewlett-Packard.

Explanation:

APPLE´S CURRENT RATIO:

Current Ratio = Current Asset / Current Liabilities

Current Ratio = 76.36 / 76.41

Current Ratio = 0.99

APPLE´S QUICK RATIO:

Quick Ratio = (Current Assets – Inventories) / Current Liabilities

Quick Ratio = (76.36 – 2.45) / 76.41

Quick Ratio = 0.96