Question

Financial​ ratios: Liquidity.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window: Calculate the current​ ratio, quick​ ratio, and cash ratio for Tyler Toys for 2013 and 2014. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?

Tyler Toys, Inc.
Income Statement for Years Ending December 31, 2013 and 2014
	2014	2013
Revenue	$14,147,749	$13,567,341
Cost of goods sold	$-8,448,332	$-8,131,744
Selling, general, and administrative expenses	$-997,859	$-980,400
Depreciation	$-1,497,717	$-1,472,372
EBIT	$3,203,841	$2,982,825
Interest expense	$-375,500	$-355,257
Taxes	$-1,074,770	$-998,476
Net income	$1,753,571	$1,629,092

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Tyler Toys, Inc.
Balance Sheet as of December 31, 2013 and 2014
ASSETS	2014	2013	LIABILITIES	2014	2013
Current assets			Current liabilities
Cash	$190,926	$187,793	Accounts payable	$1,546,260	$1,456,919
Investments	$181,496	$120,253	Short-term debt	$312,297	$332,401
Accounts receivable	$668,538	$631,653	Total current liabilities	$1,858,557	$1,789,320
Inventory	$587,683	$563,072	Long-term liabilities
Total current assets	$1,628,643	$1,502,771	Debt	$7,286,550	$6,604,823
Long-term assets			Other liabilities	$1,463,867	$1,345,323
Investments	$3,053,051	$2,828,975	Total liabilities	$10,608,974	$9,739,466
Plant, property, and equipment	$8,496,081	$8,480,160	OWNERS’ EQUITY
Goodwill	$348,181	$346,128	Common stock	$1,458,683	$1,454,766
Intangible assets	$1,158,494	$956,879	Retained earnings	$2,616,793	$2,920,681
			Total owners’ equity	$4,075,476	$4,375,447
			TOTAL LIABILITIES
TOTAL ASSETS	$14,684,450	$14,114,913	AND OWNERS’ EQUITY	$14,684,450	$14,114,913

​ Right-click on the table and select Copy to Clipboard and then​ right-click the highlighted texts in the popup dialogue box and select Copy

in order to paste its contents into a

spreadsheet.

                                                                                                                                                                    

Answer 1

1. Current ratio = Current assets / Current liabilities

2013 = $1,502,771 / $1,789,320 = 0.839

2014 = $1,628,643 / $1,858,557 = 0.876

2. Quick ratio = (Current assets - Inventory) / Current liabilities

2013 = ($1,502,771 - $563,072) / $1,789,320 = 0.525

2014 = ($1,628,643 - $587,683) / $1,858,557 = 0.560

3. Cash ratio = Cash and Cash equivalent / Current liabilities

2013 = $187,793 / $1,789,320 = 0.104

2014 = $190,926 / $1,858,557 = 0.102

The ratio look reasonable and the change show improving liquidity fir all ratio except the cash ratio. Cash ratio should be huge concern as it is very low and affect liquidity.