osh Smith has compiled some of his personal financial data in order to determine his liquidity position. The data are as follows: Account Amount Cash $ 3 comma 150 Marketable securities 1 comma 050 Checking account 840 Credit card payables 1 comma 270 Short-term notes payable 850 a. Calculate Josh's liquidity ratio. b. Several of Josh's friends have told him that they have liquidity ratios of about 1.8. How would you analyze Josh's liquidity relative to his friends?

Question

Business

Jan Wiley

31 August, 02:59

osh Smith has compiled some of his personal financial data in order to determine his liquidity position. The data are as follows: Account Amount Cash $ 3 comma 150 Marketable securities 1 comma 050 Checking account 840 Credit card payables 1 comma 270 Short-term notes payable 850 a. Calculate Josh's liquidity ratio. b. Several of Josh's friends have told him that they have liquidity ratios of about 1.8. How would you analyze Josh's liquidity relative to his friends?

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Answers (1)

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Brenda Gibson · Answer 1

a. The Josh's liquidity ratio is 2.38 times

b. Higher

Explanation:

a. The formula to compute the liquidity ratio is shown below:

Liquidity ratio = Quick assets : Current liabilities

where,

Quick assets = Cash + Marketable securities + Checking account

= $3,150 + $1,050 + $840

= $5,040

And, the current liabilities equal to

= Credit card payable + Short-term notes payable

= $1,270 + $850

= $2,120

Now put these values to the above formula

So, the answer would be equal to

= $5,040 : $2,120

= 2.38 times

b. The josh liquidity ratio is higher then his friend told him about the liquidity ratio. It is increased by 0.58 times which means that he is able to meet his short term obligations.