Question

The following information is available for four companies. Company Current Assets Total Assets Current Liabilities Total Liabilities Net Income Current Ratio Alpha Company $74,524 $168,672 $60,100 $150,600 $94,958 Beta Company $207,536 $290,290 $152,600 $203,000 $207,536 Gamma Company $60,125 $66,929 $32,500 $52,700 $36,725 Delta Company $95,335 $182,520 $82,900 $135,200 $105,283 Which company has the best short-term solvency position

Answer 1

Answer:

Gamma

Explanation:

Current ratio is an example of a liquidity ratio. Liquidity ratios measure a firm's ability to honour its short terms obligations. the higher the current ratio, the higher the firm's liquidity and its ability to meet short term obligations

Current ratio = current asset /current liability

Alpha = $74,524 /  $60,100 = 1.24

Beta = $207,536 / $152,600  = 1.36

Gamma =  $60,125 / $32,500 = 1.85

Delta = $95,335 / $82,900 = 1.15

Gamma has the highest current ratio and the best short-term solvency position