Potz and Pans, a small gift shop, has current assets of $45,000 (including inventory valued at $30,000) and $9,000 in current liabilities. WannaBees, a specialty clothing store, has current assets of $150,000 (including inventory valued at $125,000) and $85,000 in current liabilities. Both businesses have applied for loans.
1. Calculate the current ratio for each company. Which company is more likely to get the loan based on this value? Explain why.
2. Calculate the acid-test ratio for each firm. (Formula is in the text.) Based on this value, which firm would be more likely to obtain a loan from a bank. Explain why.
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