Introduction to Business Essay Example | Topics and Well Written Essays - 250 words - 7

Introduction to Business - Essay Example This implies that Potz’s assets are more likely to be converted into cash beforehand to that of the Wannabees. It is therefore believed that Potz possess lesser risk to the banks and thus suits more to their requirements to pay-off the loan. (Brigham, 1985) The calculations of the acid test ratio have only confirmed our opinion. It can be observed from the calculations above that Wannabee has too much cash entrapped in inventories which takes time to liquidate. (Brigham, 1985) On the other hand Potz, whose acid-test ratio is 5.7 times larger than that of the Wannabees, is more likely to attract the bank due to its ability to liquefy itself. Therefore, it is expected that the Potz is more likely to receive the loan due to its capacity to turn its assets into cash, which can be reflected in the calculations of their acid-test ratio. Despite the fact that liquidity plays an important role in the bank’s decision to grant the loan but one cannot ignore the impact of the profitability, efficiency and leverage ratios in the process. However, if the best decision is to be based on the ratios given in the exercise then Potz is likely to succeed in the