Investments, tenth edition

2011

2012

2013

2013 Industry Average

.73

.58

.49

1.0

   3.     Cash  ratio.      A company’s receivables are less liquid than its holdings of cash and 

marketable securities. Therefore, in addition to the quick ratio, analysts also com-

pute a firm’s cash ratio, defined as   

Cash ratio

5

Cash

1 Marketable securities

Current liabilities

  

     GI’s cash ratios are  

2011

2012

2013

2013 Industry Average

.487

.389

.324

.70

GI’s liquidity ratios have fallen dramatically over this 3-year period, and by 2013, its 

liquidity measures are far below industry averages. The decline in the liquidity ratios com-

bined with the decline in coverage ratio (you can confirm that times interest earned has 

also fallen over this period) suggests that its credit rating has been declining as well, and, 

no doubt, GI is considered a relatively poor credit risk in 2013.    

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7/17/13   4:13 PM

7/17/13   4:13 PM

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