Question

Current Position Analysis

The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

				Current Year			Previous Year
Current assets:
Cash				$433,200			$353,600
Marketable securities				501,600			397,800
Accounts and notes receivable (net)				205,200			132,600
Inventories				831,600			539,200
Prepaid expenses				428,400			344,800
	Total current assets			$2,400,000			$1,768,000
Current liabilities:
Accounts and notes payable
	(short-term)			$348,000			$364,000
Accrued liabilities				252,000			156,000
	Total current liabilities			$600,000			$520,000

a. Determine for each year (1) the The excess of the current assets of a business over its current liabilities.working capital, (2) the A financial ratio that is computed by dividing current assets by current liabilities.current ratio, and (3) the A financial ratio that measures the ability to pay current liabilities with quick assets (cash, temporary investments, accounts receivable), computed as quick assets divided by current liabilities.quick ratio. Round ratios to one decimal place.

			Current Year			Previous Year
1. Working capital	$			$
2. Current ratio
3. Quick ratio

b. The liquidity of Nilo has ___________ from the preceding year to the current year. The working capital, current ratio, and quick ratio have all _____________ . Most of these changes are the result of an ____________ in current assets relative to current liabilities.

Answer 1

Answer to Q a.
	Current year	Previous year
1) Working capital = Total Current assets Minus Total Current liabilities
	24,00,000 - 6,00,000	17,68,000 - 5,20,000
	18,00,000	12,48,000
2) Current ratio = Current assets/Current Liabilities
	2400000/600000	1768000/520000
	4.0 times	3.4 times
3) Quick ratio = Total current assets - Inventory - Prepaid expense / Total current Liabilities
Quick assets = (24,00,000 - 8,31,600 - 4,28,400 )/600000		(1768000 - 539200 - 344800 )/ 520000
	1.9 times	1.7 times

Answer to Q b.

The liquidity of Nilo has increases from the preceding year to the current year. The working capital, current ratio, and quick ratio have all increases . Most of these changes are the result of an increase in current assets relative to current liabilities.