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Unformatted text preview: Analysis Careful examination of debt obligations helps you assess a company's ability to pay its current and long-term obligations. It also helps you determine whether a company can obtain debt financing in order to grow. We will use the following information from the financial statements of Toyota Motor Corporation to illustrate the analysis of a company's liquidity and solvency. PhotoDisc, Inc./Getty Images. 10-16 Simplified balance sheets for Toyota Motor Corporation Liquidity Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. A commonly used measure of liquidity is the current ratio (presented in Chapter 2 ). The current ratio is calculated as current assets divided by current liabilities. Illustration 10-17 presents the current ratio for Toyota along with the industry average. Illustration 10-17 Current ratio Toyota's current assets are approximately equal to its current liabilities. Therefore its current ratio Toyota's current assets are approximately equal to its current liabilities....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.
- Spring '11