Question

Please calculate the following ratios:

Current ratio

debt to asset ratio

quick ratio

EXAMPLE COMPANY

ASSETS LIABILITIES

TOTAL CURRENT ASSETS=89,000 TOTAL CURRENT LIABILITIES = 61,000

INVESTMENT =36,000 TOTAL LONG TERM LIABILITIES = 420,000

PROPERTY,PLANT &EQUIP TOTAL LIABILITIES= 481,000

LAND = 5,500 STOCKHOLDERS EQUITY

LAND IMPROVEMENTS = 6,500 COMMON STOCKS =110,000

BUILDINGS = 180,000 RETAINED EARNING = 220,000

EQUIPMENT = 201,000 ACCUM OTHER COMPREHENSIVE INCOME = 9,000

LESS: ACCUM DEPRECIATION = (56,000) LESS: TREASURY STOCK = (50,000)

PROP,PLANT,EQUIP NET TOTAL= 337,000 TOTAL STOCKHOLDER'S EQUITY = 289,000

INTANGIBLE ASSETS TOTAL LIABILITIES & STOCKHOLDERS EQUITY= 770,000

GOODWILL = 105,000

TRADE NAMES = 200,000

TOTAL INTANGIBLE ASSETS = 305,000

OTHER ASSETS = 3,000

TOTAL ASSETS = 770,000

Answer 1

Answer is as follows:

1. Current Ratio: Current Assets / Current Liabilities

= 89000 / 61000 = 1.46

2. Debt to Asset Ratio = Total debt / Total assets

In the given question, debt is not specifically and therefore we take all the current and long term liabilities.

= ( 61000 + 420000 ) / 770000

= 0.62

3. Quick Ratio = Liquid assets / Liquid liabilities

Liquid assets = Current assets - Inventory - Prepaid Insurance

Liquid Liabilities = Current Liabilities - Bank Overdraft

But in the given question, the break up of current assets and current liabilities is not given, therefore we take current assets and current liabilities as it as assuming them as liquid assets and liabilties.

= 89000 / 61000

= 1.46