Arctic vs. Polaris

Paper Summary:

The paper uses current ratios and the quick test to evaluate the liquidity and the short-term solvability of Arctic and Polaris. The paper discusses how a company that is in short-term financial difficulties may have difficulties in the long run as well. The paper, therefore, assesses the liquidity status for a judgement on the overall financial health of the two companies. The paper explains that the current ratio is calculated by dividing the current asset value to the current liabilities value and, subsequently, compared to 1. For a company not to be in trouble with its liquid assets, its current assets must be greater in value than the current liabilities, so the current ratio has to be over 1.

From the Paper:

"Indeed, as far as the current ratio and short-term solvability are concerned, the companies have values higher than 1, which shows that they will be able to honour any short-term liabilities from their current assets. On the other hand it is interesting to notice that the current ratio at Arctic is almost 2.5 higher in value than the one at Polaris. A more prudent choice from Arctic would be the best explanation, putting away all risk of short-term solvability problems."

Sample of Sources Used:

• Retained Earnings = 2 Taxes? Tax & Business Insights. Volume 4, Issue 4 - July/August 2002
• Corporation Retained Earnings. Form 1120 - US Corporation Income Tax Return.
• Defrancesco, Roccy. Rescuing Retained Earnings And Mitigating The Double Tax. National Underwriter. February 2006
• Why Owners Love Their Retained Earnings Account--How to Handle it. The American Institute of Professional Bookkeepers. Volume 1: Issue 17
• How Corporations are Taxed. July 2004. Nolo.com.

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• Cause and Effect Essay # 84168 : "Arctic Warming and Polar Bears"

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