Week Five Exercise Assignment B
Week Five Exercise Assignment
Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$6,000
$5,000
$4,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
On July 10, the current ratios are 3.00, 3.00 and 3.00 respectively for Edison, Stagg and Thornton and quick ratios are 2.50, 2.08 and 1.67 respectively for each of the three companies.
Liquidity Ratios
Edison
Stagg
Thornton
Current ratio
3.00
3.00
3.00
Quick ratio
2.50
2.08
1.67
According to these two liquidity ratios Edison firm is the most liquid as it has the highest Quick ratio; which means that Edison has $2.5 liquid assets to repay $1 current liabilities.
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
530,000
400,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
205,000
156,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
Instructions
a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.
The accounts receivable turnover and inventory turnover ratios of Alaska Products, Inc. for 19X5 are computed below by dividing the net sales by average accounts receivables and by dividing the net sales by average inventory respectively.
Turnover Ratios
19X5
Accounts Receivables Turnover
5.20
Inventory Turnover
7.33
These ratios indicate that the
Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$6,000
$5,000
$4,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
On July 10, the current ratios are 3.00, 3.00 and 3.00 respectively for Edison, Stagg and Thornton and quick ratios are 2.50, 2.08 and 1.67 respectively for each of the three companies.
Liquidity Ratios
Edison
Stagg
Thornton
Current ratio
3.00
3.00
3.00
Quick ratio
2.50
2.08
1.67
According to these two liquidity ratios Edison firm is the most liquid as it has the highest Quick ratio; which means that Edison has $2.5 liquid assets to repay $1 current liabilities.
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
530,000
400,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
205,000
156,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
Instructions
a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.
The accounts receivable turnover and inventory turnover ratios of Alaska Products, Inc. for 19X5 are computed below by dividing the net sales by average accounts receivables and by dividing the net sales by average inventory respectively.
Turnover Ratios
19X5
Accounts Receivables Turnover
5.20
Inventory Turnover
7.33
These ratios indicate that the