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Ch 07: Assignment - Analysis of Financial Statements Which of the following asset classes is generally considered to be the least liquid? Accounts receivable Inventories O Cash The most recent data from the annual balance sheets of Pellegrini Southern Inc. and LeBron Sports Equipment Inc. are as follows: Balance Sheet December 31 (Millions of dollars) LeBron Sports Pellegrini LeBron Sports Equipment Inc. Southern Inc. Equipment Inc. Liabilities Pellegrini Southern Inc. Assets Current assets Current liabilities SO Cash $5,166 S3,321 Accounts $0 payable Accounts 1.890 1,215 1139 Accruals 0 receivable 5,544 Inventories 3,564 6,455 Notes payable 6,075 Total current $12.500 $8,100 Total current $7,594 $6,075 liabilities assets 9,281 7,425 Net fixed assets Long-term bonds $16,875 Total liabilities $13,500 9,900 9.900 Net plant and equipment Common equity Common stock 3,656 2.925 Retained 1,969 1,575 earnings Total common equity $5,625 $4,500 $22,500 Total liabilities $18,000 522.500 Total assets $18.000 and equity Complete the following table by entering the values of the current and quick ratios for Pellegrini Southern Inc. and LeBron Sports Equipment Inc.. (Hint: Round to four decimal places. ) Ratio Pellegrini Southern Inc. LeBron Sports Equipment Inc. Current Quick Which of the following statements are true? Check all that apply. LeBron Sports Equipment Inc. has a better ability to meet its short-term liabilities than Pellegrini Southern Inc. A current ratio of 1 indicates that the book value of the company's current assets is equal to the book value of its current liabilities. If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations. Compared to Pellegrini Southern Inc., LeBron Sports Equipment Inc. has less liquidity and a lower reliance on outside cash flow to finance its short-term obligations. An increase in the current ratio over time always means that the company's liquidity position is improving. One of the most important assumptions behind the calculation of the quick ratio is that the firm's accounts receivable cash within the time period for which credit was granted. be converted into

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