Question

Exercise 3-17 (Algo) Calculating ratios; Bargain Deal [LO3-8]

Bargain Deal, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended January 28, 2017, are shown below.

Bargain Deal, Inc. Balance Sheet At January 28, 2017 ($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	2,146
Short-term investments		1,322
Accounts receivable (net)		1,247
Inventory		5,068
Other current assets		426
Total current assets		10,209
Long-term assets		3,718
Total assets	$	13,927
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	5,300
Other current liabilities		4,175
Total current liabilities		9,475
Long-term liabilities		2,250
Shareholders’ equity		2,202
Total liabilities and shareholders’ equity	$	13,927

Bargain Deal, Inc. Income Statement For the Year Ended January 28, 2017 ($ in millions)
Revenues	$	39,613
Costs and expenses		38,170
Operating income		1,443
Other income (expense)*		(82	)
Income before income taxes		1,361
Income tax expense		758
Net income	$	603

*Includes $233 of interest expense.
  
Required:
1-a. Calculate the current ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-b. Calculate the acid-test ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-c. Calculate the debt to equity ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-d. Calculate the times interest earned ratio for Bargain Deal for its fiscal year ended January 28, 2017.

(For all requirements, round your answers to 2 decimal places.)

Answer 1

Answer-1-a)- Current Ratio= Current Assets/ Current Liabilities

= $10209/$9475

= 1.08 times

1-b)- Acid-test (Quick ratio)= (Current assets – Inventory - Prepaid expenses)/Current Liabilities

= ($10209 - $5068 - $0)/$9475

= $5141/$9475

= 0.54 times

1-c)- Debt to equity ratio= Total liabilities/Total stockholder’s equity

= ($9475 + $2250)/$2202

= $11725/$2202

= 5.32 times

1-d)- Times interest earned ratio= Income before Interest & Taxes(EBIT)/Interest expenses

= ($603+$233+$758)/$233

= $1594/$233

= 6.84 times