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?

(a) 1.11

(b) 0.96

(c) 0.51

(d) Apple has more liquidity than HPQ.

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.