Question

Your analysis of two companies reveals identical levels of working capital. Are you confident in concluding their liquidity positions are equivalent? What is the current ratio? What does the current ratio measure? What are reasons for using the current ratio for analysis?

Question

Assume a company under analysis has few current liabilities but substantial long-term liabilities. Notes to the financial statements report the company has a “revolving loan agreement” with a bank. Is this disclosure relevant to your analysis? Certain industries are subject to peculiar financing and operating conditions calling for special consideration in drawing distinctions between current and noncurrent. How should analysis recognize this in evaluating short-term liquidity?