Liquidity Ratios (KS)

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Liquidity Ratios (KS) The term liquidity refers to the speed and ease with which an asset can be converted to the most liquid of all assets, cash (Ross 23). Liquidity ratios are used to determine a company’s ability to pay off short-term and long-term debt obligations. There are a few common liquidity ratios that include the current ratio and the quick ratio. • Current Ratio The current ratio is used to measure a company’s short-term liquidity. The current ratio is calculated by dividing current assets by current liabilities. This is used as an indicator of a company’s ability to pay back its’ liabilities with its’ assets. Apple Inc. current ratio in 2010 was 2.01, the current ratio in 2011 was 1.61, the current ratio in 2012 was 1.50, the current ratio Google’s parent company Alphabet Inc.’s current ratios are quite impressive indicating the likelihood of the company paying back its’ short-term debts is rather likely. The company’s current ratio in 2010 was 4.16, in 2011 the current ratio was5.92, the current ratio in 2012 was 4.58, the current ratio was 4.58 in 2013, and in the most recent year reported, 2014, Google’s parent company’s current ratio was 4.80 (10-K. Google Inc. 2014.) Hewlett-Packard Co.’s current ratios fell below the ratios of both Apple and Google. In 2010 Hewlett-Packard Co.’s current ratio was 1.10, the current ratio for the company in 2011 was 1.01, in 2012 the current ratio was 1.09, in 2013 the current ratio was 1.11, and in the most recent year reported by Hewlett-Packard Co., 2014, their current ratio was 1.15. Looking at HP’s current ratios, it can be assumed that they are less likely to pay back their short-term debts as compared with both Apple and Google (“Annual Financials for Hewlett-Packard

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