Response to the following questions:
1. What is the relation between a firm's operating cycle and its need for liquidity?
2. Why is inventory removed from assets available to cover current liabilities in the calculation of the quick ratio?
3. Suppose you calculate the following ratios for two firms, A and B.
Firm A Firm B
Current ratio 2.0 2.0
Quick ratio 1.0 1.5
What can you say about the relative investment in inventory?