Posted: August 2nd, 2022
175 – 265 words
Cite at least one (1) peer reviewed reference
Respond to the following:
7/26/22, 11:09 AM
One Set of Ratios-Liquidity
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?
Corporate Finance Institute. (2020, February 25). Liquidity. Corporate Finance Institute; Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/liquidity/
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