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Financial Ratios Explained and Calculated

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Answer each of the questions in the following unrelated situations.

(a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $496,400, what is the amount of current liabilities? (Round answers to 0 decimal places eg 75,481)


(b) A company had an average inventory last year of $158,100 and its inventory turnover was 6. If sales volume and unit cost remain the same this year as last and inventory turnover is 7 this year, what will average inventory have to be during the current year? (Round answers to two decimal places eg 5.45)


(c) A company has current assets of $87,860 (of which $41,900 is inventory and prepaid items) and current liabilities of $44,950. Compute the following ratios. (Round answers to two decimal places eg 5.45)

What is the current ratio? :1

What is the acid-test ratio? :1

If the company borrows $17,460 cash from a bank on a 120-day loan, what will its current ratio be? :1

What will the acid-test ratio be? :1

(d) A company has current assets of $588,200 and current liabilities of $213,900. The board of directors declares a cash dividend of $161,300. (Round answers to two decimal places eg 5.45)

What is the current ratio after the declaration but before payment? :1

What is the current ratio after the payment of the dividend? :1

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Solution Summary

This solution is comprised of a detailed explanation of financial ratios, how they are used and how they are calculate. A step-by-step solution to a question is included here.

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Effects of transactions on working capital and current ratio.

3.10) Evans, Inc had current liabilities at november 30 of $137,400. The firms current ratio at that date was 1.8.

A) calculate the firms current assets and working capital at November 30.

B) assume that managment paid $30,600 of accounts payable on November 29. Calculate the current ratio and working capital at November 30 as if the November 29 payment had not been made. Round your current ratio answer to two decimal places.

C) Explain the changes,if any, to working capital and the current ratio that would be caused by the November 29 payment.

3.14) Calculate and analyze liquidity measures.

following are the current asset and current liability sections of the balance sheets for Calketch, Inc, at August 31, 2009 and 2008 ( in millions)

Current assets: August 31, 2008 August 31,2009
cash $ 12 $24
marketable securities 28 40
accounts receivable 52 32
inventories 72 32
--------- --------
Total current assets $ 164 $ 128

Current liabilities: August 31, 2008 August 31, 2009
Note payable $ 12 $ 32
Accounts payable 40 56
other accured liabilities 36 28
------ -------
Total current liabilities $ 88 $ 116

A) calculate the working capital and current ratio at each balance sheet date. Round your current ratio answer to two decimal places.

B) describe the change in the firm's liquidity from 2008 to 2009.

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