# confusing comparison but good

Balance sheets of Johns Company and Peters, Inc. as of December 31, 2001 are as follows: (in \$ millions) Johns Company Cash 60 Accounts Payable 60 Accounts Receivable 90 Long-term Debt 80 Inventory 30 Common Stock 70 Property, Plant & Equip. (net) 100 Retained Earnings 70 Total Assets 280 Total Liabilities & Equity 280 Peters, Inc. Cash 120 Accounts Payable 180 Accounts Receivable 180 Long-term Debt 500 Inventory 540 Common Stock 840 Property, Plant & Equip. (net) 900 Retained Earnings 220 Total Assets 1,740 Total Liabilities & Equity 1,740 Comparing current, quick, and cash liquidity measures for these two companies would lead an analyst to conclude that: A) Peters is generally more liquid than Johns, but quick liquidity measures favor Johns. B) Peters is more liquid than Johns. C) Johns is more liquid than Peters. D) Johns is generally more liquid than Peters, but quick liquidity measures favor Peters.

A?

Peter has a higher CR

johsn has higher quik ratio

confused, A looks like the best pick here are my #s CR johs = 3 CR for peters = 4.6 QR for J = 2.5 for peters = 1.66 cash ratio for Jonhs = 1.0 for peters, = .666

I would say C. Johns has both quick and cash ratios greater than Peter, Peter’s current ratio is higher, but that’s because of higher levels of inventory.

A Using the current ratio, the most common liquidity measure, Peters is significantly more liquid (120 + 180 + 540 / 180 = 4.67) than Johns ((60 + 90 + 30) / 60 = 3.0). However Peters’ quick ratio ((120 + 180) / 180 = 0.67) is less than Johns’ quick ratio (60 + 90 / 60 = 2.5) and Peters’ cash ratio (120 / 180 = 0.67) is also less than Johns’ (60 / 60 = 1.0). In the event of bankruptcy, Johns’ would not be as dependent on liquidating inventory in order to raise cash to cover liabilities.

I like C

A. The big factor here is the large discrepency in inventory versus cash.