9-b-f-m-f_(95)
DESCRIPTION
9-B-F-M-F_(95)TRANSCRIPT
Josh Smith has compiled some of his personal financial data in order to determine his
liquidity position. The data are as follows.
Account Amount
Cash ……………………………. $3,200
Marketable securities ………….. 1,000
Checking account ……………… 800
Credit card payables …………… 1,200
Short-term notes payable ………. 900
a. Calculate Josh’s liquidity ratio.
b. Several of Josh’s friends have told him that they have liquidity ratios of about 1.8.
How would you analyze Josh’s liquidity relative to his friends?
SOLUTION
a.
b. Since Josh’s liquidity ratio exceeds 1.8, Josh has more liquidity than his benchmark
friends.