Question

The informatin below is for #31 and #32. Joez Inc has the following:                               &nbs

The informatin below is for #31 and #32.

Joez Inc has the following:

                                                2017                2018                2019

Total Assets                            100                  110                  120

Current Liabilities                  10                    10                    10

Current Ratio                          1                      2                      3

Cash Ratio                              .5                     1.5                   2.5

Debt/Equity Ratio                   1                      1.2                   1.4

TIER                                       2                      1.9                   1.8

                       

CaroJo Inc has the following:

                                                2017                2018                2019

Total Assets                            100                  100                  100

Current Liabilities                  10                    10                    10

Current Ratio                          1                      1                      1

Cash Ratio                              .5                     .5                     .5

Debt/Equity Ratio                   1                      1                      1

TIER                                       2                      2                      2

  1.   Based on the above information, Jacob Inc has been able to increase its Current Ratio, Quick Ratio and Cash Ratio over the three years. Please explain how it was able to do so? In other words, what is driving the numbers?

Joez was able to ______________________ its    __________________ and put it into _____________________.

  1. Increase, long-term debt, cash
  2. Increase, sales, receivables
  3. Increase, long-term debt, inventory
  4. Decrease, long-term debt, cash
  5. Decrease, short-term debt, cash
  6. Increase, net income, inventory

  1.   As a business consultant, do you think that Joez sent a signal to the market that it is a stronger company than Carojo? Please explain.  

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Answer #1

Answer:

e. Decrease, short-term debt, cash

Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets - Inventory) / Current liabilities
Cash ratio = Cash & cash equivalents / Current liabilities

So, when it is seen that Joez Inc has increased its current ratio, quick ratio and cash ratio, it means that they have seen a considerable increase in current assets and decrease in current liabilities.

As a business consultant, I think that Joez has sent a signal to the market that it is a stronger company than Carojo because it has seen growth in its assets side and reduction of liabilities whereas Carojo Inc has not seen any growth, it is consistent it its working. Therefore, it can be said that Joez Inc is a stronger company.

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