urrent ratio= current assets/ current liabilities. current assets can be converted in to cash within 1yr and they are cash, short-term investments, accounts receivable, inventory, prepaid expenses. current liabilities need to be paid within 1 yr. and they are accounts payable, notes payable: short-term, accrued payables.

quick ratio= (current assets-inventories)/current liabilites

edison current ratio=12,800/3,600=3.56 quick ratio=(12,800-1000)/3,600=11,800/3,600=

3.28

stagg current ratio= 13,300/3,600=3.69 quick ratio=(13,300-2500)/3,600=10,800/3,600=3

thornton current ratio=13,800/3,600=3.83 quick ratio= (13,800-4000)/3,600=9,800/3,600=2.72

1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison Stagg Thornton

Cash $6,000 $5,000 $4,000

Short-term investments 3,000 2,500 2,000

Accounts receivable 2,000 2,500 3,000

Inventory 1,000 2,500 4,000

Prepaid expenses 800 800 800

Accounts payable 200 200 200

Notes payable: short-term 3,100 3,100 3,100

Accrued payables 300 300 300

Long-term liabilities 3,800 3,800 3,800

a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?