Question

The following ratios are available for Leer Inc. and Stable Inc. Current Ratio Debt to Assets...

The following ratios are available for Leer Inc. and Stable Inc.

Current Ratio Debt to Assets Ratio Earnings per Share
Leer Inc. 2:1 75% $3.50
Stable Inc. 1.5:1 40% $2.75



Compared to Stable Inc., Leer Inc. has

higher liquidity and lower solvency, but profitability cannot be compared based on information provided.
higher liquidity, higher solvency, but profitability cannot be compared based on information provided.
higher liquidity, lower solvency, and higher profitability.
lower liquidity, higher solvency, and higher profitablility.

Homework Answers

Answer #1
Compared to Stable Inc., Leer Inc. has higher liquidity and lower solvency, but profitability cannot be compared based on information provided.
Current Ratio measures liquidity. Higher Current Ratio indicates higher liquidity.
Debt to Assets Ratio measures the proportion of debt to total assets. Higher Debt to Assets Ratio implies higher debt proportion and lower solvency.
Earnings per Share cannot be used to measure profitability as companies may have different number of shares outstanding.
Option a is correct
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