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Current Ratio

The current ratio is found by dividing the firm’s current assets by the firm’s current liabilities. Current liabilities include the current portion of long-term liabilities, for example, interest payments on long-term debt that will become due within the year.



The current ratio gives us an idea about a firm’s ability to cover its short-term liabilities. That is, over the year we can imagine that the firm will be selling its inventory and collecting accounts receivable and, with the cash it already has in the bank or invested in marketable securities, it will be able to use these proceeds to pay interest on its debt and pay its accounts payable when they become due.

When a firm’s current ratio goes down, we may look at this trend as potentially signaling that the firm is entering financial distress. As a result, the firm may not be able to cover its short-term liabilities as easily as before. 

Industry Averages for Commonly Used Ratios

Obtain industry averages for commonly used ratios in the 2013 and 2014 period. Write a 350 word report comparing Disney ratios to the industry averages. Discuss whether Disney entertainment company is profitability, efficiency, liquidity, and solvency are better than, or worse than, two of its peers. Place the industry averages,

Short Term Solvency Ratios

HANDOUT: Useful Financial Ratios (see attachment) SHORT-TERM SOLVENCY RATIOS (Liquidity Ratios) Current ratio = Current assets ÷ Current liabilities Quick ratio = (Current assets - Inventory) ÷ Current liabilities ACTIVITY RATIOS Total asset turnover = Total operating revenues ÷ Average total assets Receivables turnov

Sherman's Current and Quick Ratio

The Sherman Company has been in the process of making small tanks and light armored vehicles for the past twenty years. Their clients cannot expend the kinds of funds necessary to acquire main battle tanks or other large scale weaponry, so their niche is very secure. Rommel/Patton Industries, a large tank builder, would like to

Inventory Turnover Ratio

3. Chaka Company had no prepaid expenses and inventories remained unchanged during the year. Other selected year-end data for the company includes the following: Cost of goods sold $1,500,000 Current liabilities 1,800,000 Current ratio 3.0 to 1 Acid-test ratio 2.5 to 1 What was the company's inventory turnover ratio f

Increased Current Ratio and Drop in Total Assets Turnover Ratio

You are a financial analyst for a pharmaceutical company and the CFO has asked you to look into the following situation. Over the past year, the company has realized an increase in its current ratio and a drop in its total assets turnover ratio. Sales have remained constant as have the quick ratio and the fixed assets turnover r

Current ratio of Kinetics, Inc.

Kinetics, Inc has total assets that equal $214,600 along with long term debt that equals $52,700, total equity equaling $119,500, fixed assets that equal $164,400 and finally sales that equal $241,900. If Kinetics Inc has a profit margin that is 6%, what is the current ratio?

Strengthen current ratio

A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? I'm choosing e because of the fact that they can pay off the long-term debt and put themselves in a position of holding onto short-term debt. Is this correct? a) Use cash to increase inventory holdings.

Liquidity ratio current ratio and the acid test ratio

Calculate the liquidity ratio (current ratio and the acid test ratio) of the three organizations and analyze your results regarding ABC, kindred and northern Illinois medical center. As ABC only has one year of data, only use one year of data for the other two companies as well. Show calculations.

Deceptive Ratio Positions

Favorable business operations may bring about certain seemly unfavorable ratios. Unfavorable business operations may result in apparently favorable ratios. For example, a company increased its sales and net income substantially for the current year, yet the current ratio at the end of the year is lower than the beginning of the

Current Ratio and Quick Ratio

A firm's long term assets = $75,000, total assets = $200,000, inventory = $25,000 and current liabilities = $50,000 A. Current ratio = 0.5; quick ratio 1.5 B. Current ratio = 1.0; quick ratio 2.0 C. Current ratio = 1.5; quick ratio = 2.0 D. Current ratio = 2.5; quick ratio = 2.0

Comparisons of acid-test ratio and current ratio

Question is to identify the similarities/differences between acid test ratio and the current ration. Compare/describe how the two ratios meet its current obligation based on similarities/differences/and descriptions.

Financial ratio analysis.

If I have sales, COGS, current assets and liabilities, finished goods, raw materials Work in process, LIFO and % of inventories. How do I calculate gross margin percentage, current ratio and inventory turnover?

Calculating current ratio

Please show calculations Snowball & Company has the following balance sheet: Current assets $ 7,000 A/P & Accruals $ 1,500 Fixed assets 3,000 S-T (3-month) Loans 2,000 Common Stock 1,500

Revenue Recording and Current Ratio

A company has borrowed $3,000,000 to expand its production plant. As a condition for the loan, the bank has required that the company maintain a Current Ratio (current assets divided by total current liabilities) of at least 1.50. On December 15th, the company comptroller reports that the costs of expansion have brought the curr

Company loans: ethics, recording revenue, accounting principle, course of action

A company has borrowed $3,000,000 to expand its production plant. As a condition for the loan, the bank has required that the company maintain a Current Ratio (current assets divided by total current liabilities) of at least 1.50. On December 15th, the company comptroller reports that the costs of expansion have brought the curr

Current ratio and Quick ratio...

In Chater 29, Brealey explains how to use financial ratios to measure the financial performance of a company. He also discusses the effect of financial transactions on financial ratios. This is the question I need answered: If a company borrows a large sum of money from a bank, will the current ratio decrease or increase? When