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Respond to the following:
Dr. Bill Berry
7/26/22, 11:09 AM
One Set of Ratios-Liquidity
Hi All,
When we look at liquidity, we evaluate how quickly an organization can turn receivables and inventories into cash to pay accounts payable and accrued wages and taxes. The current ratio includes inventory, while the quick ratio does not. Normally, we would want the current ratio to be greater than one. In the case of Walmart, the ratio is under one, but they are more than good in terms of liquidity. Why? Well, the volume that cash flows through the business is very high, and both receivables and payables are insignificant. As a result, even with a low current ratio, they are highly liquid.
What other factors may influence how we evaluate a ratio?
Dr. Bill
Corporate Finance Institute. (2020, February 25). Liquidity. Corporate Finance Institute; Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/liquidity/
