Week 1 HW - Exercise 1-10 Looking at the Current ratio,...

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Exercise 1-10 Looking at the Current ratio, Huff’s current ratio decreased by 15% in 2005 and 6% in 2006. The decrease in the current ratio signifies that there has been a weakening in the liquidity position of the company. Mesa on the other hand, has increasing current ratios in both 2005 and 2006; 44% and 19% respectively. An increase in the current ratio represents improvement in the company’s liquidity position. Overall, Mesa is in a better standing than Huff because the company is more liquid and has the ability to pay its current obligations in time and when they become due. Although Huff’s current ratio is lower, the company might still be able to pay its current liabilities in time but might face some difficulties. Looking at the Acid-test ratio, Huff’s ratio decreased by 10% in both 2005 and 2006. This generally indicates that the company is is over-leveraged, struggling to maintain or grow sales, paying bills too quickly, or collecting receivables too slowly. Mesa on the other hand, has increasing acid-test ratios in both 2005 and 2006; 60% and 13%. This shows that Mesa is experiencing a solid top-line growth, quickly converting receivables into cash, and easily able to
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This note was uploaded on 05/28/2011 for the course FINANCE 140 taught by Professor Johnsmith during the Spring '11 term at Metro State.

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Week 1 HW - Exercise 1-10 Looking at the Current ratio,...

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