Liquidity Ratios Liquidity ratios are used to measure a company’s ability to pay debt obligations and its margin of safety. The calculations are determined by the current ratio, quick ratio and operating cash flow ratio. Liquidity ratios are useful when compare to another company. The financial ratios that we

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Solvency ratios is used to measure the ability of a company to meet its long-term debts. More importantly it is used to determine whether a company’s cash flow is sufficient to meet short and long-term liabilities. The financial ratios that we used for Red soda vs Blue soda was debt to asset ratio, times interest earned, cash debt coverage and free cash flow. First, debt to asset ratio is an indicator of financial leverage. The ratio is calculated by dividing total liabilities by its total assets. The two companies were similar in numbers with Red Soda at 0.49 and Blue at 0.58. This indicates that Red soda has more debt than assets and vise versa for blue. Blue Soda has more assets than debt. This is a good sign that Blue Soda is managing their cash flow efficiently. The time interested earned or TIE coverage ratio is a measure of a company’s ability to honor its debt payments. A low interest earned signifies a risk for investors. It seems that both Red and Blue Soda company exceeded the time interest earned. Furthermore, cash debt coverage, also a liquidity ratio as well, measures the relationship between net cash provided by operating activities and the average current liabilities of the company. Generally, a ratio that is higher than 1 indicates that the company can pay all its current debt from its cash flow. Unfortunately, both companies are below 1.0 which indicates that they cannot pay all its

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Such ratios included the current ratio and the debt to asset ratio. Accounts receivable turnover and asset turnover was used to determine the stability of the company, and Current cash debt coverage was used to help determine liquidity. The financial review of the Red and Blue Soda companies indicated that both have weaknesses and strengths. They both had similar results with receivable turnover, time interest earned, return on assets, and return on stockholders’ equity. In addition, Red Soda excelled in Days in inventory, free cash flow, and profit margin. Blue Soda company excelled in current ratio, inventory turnover, debt to asset ratio, and asset