Question

Liquidity management Bauman Company’s total current assets, total current liabil-

ities, and inventory for each of the past 4 years follow:

LG 3

Item 2009 2010 2011 2012
Total current assets $16,950 $21,900 $22,500 $27,000
Total current liabilities 9,000 12,600 12,600 17,400
Inventory 6,000 6,900 6,900 7,200

Inventory turnover 2009 2010 2011 2012
Bauman Company 6.3 6.8 7.0 6.4
Industry average 10.6 11.2 10.8 11.0

a. Calculate the firm’s current and quick ratios for each year. Compare the resulting
time series for these measures of liquidity.
b. Comment on the firm’s liquidity over the 2009–2010 period.
c. If you were told that Bauman Company’s inventory turnover for each year in the

2009–2012 period and the industry averages were as follows, would this infor-
mation support or conflict with your evaluation in part b? Why?

Answer 1

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