Using the ratios and information given below for PepCo Company, ...

[misspop]

Using the ratios and information given below for PepCo Company, analyze the short-term liquidity of the firm.
 
  2015 2014
  Current ratio .86 .80
  Quick ratio .65 .61
  Cash flow liquidity ratio .69 .62
  Average collection period 32 days 30 days
  Days inventory held 74 days 74 days
  Days payable outstanding 157days 163 days
  Cash conversion cycle (51 days) (59 days)
  Cash flow from operations (in millions) 2,508 2,232
  Net sales (in millions) 13,957 13,074
 
 
 
 What will be an ideal response?

Question 2

Explain why employers might not be enthusiastic about employee requests for pay raises, aside from obvious reasons of the cost of the pay raise itself.

[JaynaD87]

Answer to Question 1

PepCo's current, quick, and cash flow liquidity ratios are all below one. The firm has fewer current assets and fewer liquid items than the current liability amounts each year. The ratios have increased slightly from 2014 to 2015 . The average collection period is good and stable. The inventory days held is steady at 74 days, but without an industry average it is difficult to assess if the firm could shorten the time inventory is held. Of concern is the long time it takes PepCo to pay its suppliers. At more than five months the firm risks losing a quality supplier if they are not paying bills on time. The high days payable outstanding is the reason that the cash conversion cycle is negative. While this is beneficial to PepCo to keep their cash on hand longer, it could be a problem as mentioned if suppliers are not satisfied in a timely manner. Both sales and cash from operations are increasing which is a positive sign that the firm is able to cover debts as they come due.

Answer to Question 2

The amount of the pay raise is not the only additional expense incurred when an employee receives an increase in pay. The employer contribution would increase for Social Security and Medicare. A relatively small pay raise for each employee can, over a year, be a considerable expense to an employer.