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    Analyzing the ability to pay liabilities

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    Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:

    (See Attatchment)

    Compute the following ratios for 2012 and 2011:

    a. Current ratio
    b. Acid-test ratio
    c. Debt ratio
    d. Debt to equity ratio

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    Solution Preview

    1. Current ratio = current assets/current liabilities

    585,000/255,000 = 2.29

    535,000/222,000 = 2.41

    2. Acid test ratio = (cash + accounts receivable + term investments)/current ...

    Solution Summary

    1. Current ratio = current assets/current liabilities