Question

At the end of​ 2015, Apple had cash and​ short-term investments of $41.39billion, accounts receivable of $35.97billion, current assets of $ 89.75billion, and current liabilities of $ 80.59billion.a. What was​ Apple's current​ ratio?b. What was​ Apple's quick​ ratio?c. What was​ Apple's cash​ ratio?d. At the end of​ 2015, HPQ had a cash ratio of 0.38​, a quick ratio of 0.73 and a current ratio of 1.19. What can you say about the asset liquidity of Apple relative to​HPQ?

Answer 1

(a) 1.11

(b) 0.96

(c) 0.51

(d) Apple has more liquidity than HPQ.

Step-by-step explanation:

(a) Current Ratio :

Current ratio is a liquidity ratio, which measures the firm’s ability to pay off its short-term obligations.

Current Ratio = Current Assets ÷ Current Liabilities

Apple’s current ratio:

= $89.75 ÷ $80.59

= 1.11

(b) Quick Ratio :

Quick ratio is more stringent measure of liquidity. It does not include inventory and other assets that are not liquid.

Quick ratio = (cash + marketable securities + receivables) ÷ current liabilities

Apple’s quick ratio:

= ($41.39 + $35.97) ÷ $80.59

= 0.96

(c) Cash ratio

Cash ratio is a conservative liquidity measure.

Cash ratio = (cash+ marketable securities) ÷ current liabilities

Apple’s cash ratio:

= $41.39 ÷ $80.59

= 0.51

(d) Apple has more liquidity than HPQ.

Though the current ratio of both the companies is the same, Apple has a higher quick ratio and cash ratio.

The reason is because HPQ has a high amount of inventory. Apple is more equipped to meet its short-term obligations.