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Life of Walle

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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?
I would say that Thornton has the most liquid because they have a larger inventory and looks like they can move the inventory decently quick , just like the other companies.

Edison:
Current ratio = $12,800 / 3,600 = 3.56
Quick ration = ($6,000 + 3,000 + 2,000) / 3,600 = 3.06

Stagg:
Current ratio = $13,300 / 3,600 = 3.69
Quick ratio = ($5,000 + 2,500 + 2,500) / 3,600 = 2.78

Thornton:
Current ratio = $13,800 / 3,600 = 3.83
Quick ratio = ($4,000 + 2,000 + 3,000) / 3,600 = 2.5

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. | | | | | | | | | |

3.

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