Question

Current Position Analysis

Sherwood, Inc., the parent company of Tasty snack foods and Super beverages, had the following current assets and current liabilities at the end of two recent years:

	Current Year (in millions)		Previous Year (in millions)
Cash and cash equivalents	$2,008		$1,911
Short-term investments, at cost	1,426		3,549
Accounts and notes receivable, net	4,534		3,640
Inventories	1,992		1,993
Prepaid expenses and other current assets	664		737
Short-term obligations	266		2,821
Accounts payable	6,374		6,279

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

	Current Year	Previous Year
1. Current ratio
2. Quick ratio

b. The liquidity of Sherwood has some over this time period. Both the current and quick ratios have . Sherwood is a company with resources for meeting short-term obligations. Its liquidity as measured by the current and quick ratios has during this period.

Answer 1

1.Current ratio

Current ratio = Current Assets – Current Liabilities

Current Ratio - Current Year = $10,624 / $6,640 = 1.6

Current Ratio - Previous Year = $11,830 / $9,100 = 1.3

2. Quick ratio

Quick ratio = [ Total Current Assets – Inventories ] / Current Liabilities

Quick Ratio - Current Year = [ $10,624 – 1,992 ] / $6,640 = 1.3

Quick Ratio - Previous Year = [ $11,830 – 1,993 ] / $9,100 = 1.1

Workings

Current Assets = Cash and cash equivalents + Short-term investments + Accounts and notes receivable + Inventories + Prepaid expenses and other current assets       

Current Liabilities = Short-term obligations + Accounts payable    

Current Assets - Current Year = $2,008 + 1,426 + 4,534 + 1,992 + 664 = $10,624

Current Assets - Previous Year = $1,911 + 3,549 + 3,640 + 1,993 + 737 = $11,830

Current Liabilities - Current Year = $266 + 6,374 = $6,640

Current Liabilities - Previous Year = $2,821 + 6,279 = $9,100