Question
Asked Sep 16, 2019
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Josh Smith has compiled some of his personal financial data in order to determine his liquidity position. The data are as​ follows:

Account Ammount
Cash 3,210
Marketable securities 960
Checking account 790
Credit card payables 1,150
Short-term notes payable 1,140
a. Calculate​ Josh's liquidity ratio.
b. Several of​ Josh's friends have told him that they have liquidity ratios of about 1.5. How would you analyze​ Josh's liquidity relative to his​ friends?
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Expert Answer

Step 1

a)

 Calculation of liquidity ratio:

Josh's liquidity ratio is 2.17.

Excel spreadsheet:

...
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A В Amount (S) Particulars 1 2 Current assets з Cash 4 Marketable securities Checking account 6 Total current assets (A) S3,210 $960 $790 S4,960 7 Current labilities: 8 Credit card payable 9 Short-term notes payable 10 Total current liabilities (B) S2,290 Liquidity ratio (A/B) S1,150 S1,140 2.17 Ln

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