Question

You are the loan manager at a local bank. Two companies approached you about securing a 6-month loan. Based on the below ratio's assess and comment on the below.

Liquidity
Working Capital:	Company 1	Company 2	Which is better?
	897	420
Current Ratio:
	1.40	1.16
Quick Ratio:
	1.16	0.95
Receivable Turnover:
	12.44	7.76
	times	times
Average Collection Period:
	29.33	47.03
	days	days
Inventory Turnover:
	4.06	4.06
Days in Inventory:
	89.90	89.93

Answer 1

Company 1 has higher working capital than Company 2 which shows better ability of meeting its short-term obligation.
Company 1 has higher current ratio than Company 2 which shows better ability of meeting its short-term obligation.
Company 1 has higher quick ratio than Company 2 which shows better ability of meeting its short-term obligation.
Company 1 has higher receivable turnover than Company 2 which shows that Company 1 collects its average accounts receivable higher number of times.
Company 1 has lower average collection period than Company 2 which shows that Company 1 takes less number of days to collect its accounts receivable.
Company 1 and Company 2 has equal inventory turnover shows that both companies convert its inventory into sales with equal number of time during the year.
Company 1 has lower days in inventory than Company 2 which shows that Company 1 takes less number of days to convert its inventory to sale.

Overall, Company 1 is performing better than Company 2 and has better short-term liquidity.