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IBM Current Ratios, Quick Ratios, and Debt to Equity Ratios

1. Identify two publicly traded corporations in the same industry and compare and contrast their current ratios, quick ratios, and debt to equity ratios. Explain what these ratios mean and how they help understand the differences between the two companies.

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Two publicly traded companies in the computer industry are Microsoft (Ticker symbol: MSFT) and IBM (Ticker symbol IBM).

Their ratios can be obtained from finance.yahoo.com or nasdaq.com. Screenshots are provided of these websites in the pdf file so you can see where the information is obtained. A table of their ratios is as follows:

Microsoft IBM
Current ratio 2.52 (finance.yahoo.com) 1.12 (finance.yahoo.com)
Quick ratio 2.45 (nasdaq.com) 1.22 (nasdaq.com)
Debt-to-equity ratio 26.53 (finance.yahoo.com) 317.50 (finance.yahoo.com)

1) Current ratio = (current assets) / (current liabilities)

The Current ratio compares the current assets with the current liabilities. Note that current liabilities are short-term liabilities. Hence, the Current ratio is an indication of the extent to which the claims made by short-term lenders are covered by assets that are expected to be converted to cash in a period that matches the maturity of the (short-term) liabilities.

The higher the current ratio is, the more liquid the company. A current ratio of greater than 1 is generally considered good. A current ratio of less than 1 is generally considered bad as the company may have a hard time meeting its short-term obligations to ...

Solution Summary

Answered in 859 words. Two companies are compared. A pdf file with 6 screenshots is provided to show where to obtain the information