Question

Company 1:

	Industry Median	2020	2019	2018	2017	2016
Liquidity
Quick Ratio	0.28	0.27	0.20	0.30	0.29	0.44
Current Ratio	1.20	0.89	0.83	0.96	0.94	1.12
Times Interest Earned	9.2	-	-	-	-	8.0
Cash Cycle (Days)	69.0	0.9	3.7	7.8	12.3	10.7

Company 2:

	Industry Median	2020	2019	2018	2017	2016
Liquidity
Quick Ratio	0.53	0.27	0.28	0.32	0.29	0.29
Current Ratio	1.26	0.76	0.76	0.78	0.80	0.76
Times Interest Earned	4.0	4.0	4.3	4.5	6.7	7.5
Cash Cycle (Days)	20.0	7.8	7.6	7.7	7.9	7.3

Question: Please discuss which company do you think is more able to meet short term obligation (Compare and contrast)

Answer 1

Answer: Company A is more able to meet short term obligation then company B because of following reasons-

1. Quick ratio is the liquid ratio that shows company's liquidity position. Company A's quick ratio is near to quick ratio of industry.
2. Company A's current ratio is higher than company B's that means company A is more liquid than company B.
3. Company A's cash cycle days are lesser than company B. Cash cycle days tell how much time, it takes to convert the inventory or other investments into cash. Company A can easily and quickly do it as compare to company B.

In this way, we can say that company A's liquidity position is better than company B.