Interpret Liquidity, Solvency, And Profitability Measures Practice Test

A public apparel company is facing cash flow pressure and is monitoring short-term solvency. Selected year-end data (in $ millions): Current assets 210 (including inventory 95 and prepaids 15); Current liabilities 150. The company reports a current ratio of $210/150 = 1.40$; industry benchmark is 1.60. Based on the financial data, what does the current ratio indicate about the company's liquidity?

A private e-commerce company has experienced declining net income and is evaluating shareholder returns relative to peers. Selected year-end data (in $ millions): Net income 8; Average equity 40. ROE is $8/40 = 20%$; industry benchmark ROE is 22%. What insight does the ROE provide regarding the company's profitability?