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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 Summary

1. Current ratio = current assets/current liabilities

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1. Current ratio = current assets/current liabilities

***2012
585,000/255,000 = 2.29

***2011
535,000/222,000 = 2.41

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

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