Financial? ratios: Liquidity.??The financial statements for Tyler? Toys, Inc. are shown in the table below.
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. |
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Income Statement for Years Ending December 31, 2013 and 2014 |
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2014 |
2013 |
|
Revenue |
$14,146,314 |
$13,566,585 |
Cost of goods sold |
$-8,448,624 |
$-8,132,222 |
Selling, general, and |
$-998,502 |
$-980,235 |
Depreciation |
$-1,497,112 |
$-1,471,527 |
EBIT |
$3,202,076 |
$2,982,601 |
Interest expense |
$-376,170 |
$-355,720 |
Taxes |
$-1,073,844 |
$-998,215 |
Net income |
$1,752,062 |
$1,628,666 |
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Tyler Toys, Inc. |
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Balance Sheet as of December 31, 2013 and 2014 |
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ASSETS |
2014 |
2013 |
LIABILITIES |
2014 |
2013 |
Current assets |
Current liabilities |
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Cash |
$190,710 |
$187,230 |
Accounts payable |
$1,546,210 |
$1,455,235 |
Investments |
$180,487 |
$120,286 |
Short-term debt |
$312,969 |
$333,181 |
Accounts receivable |
$667,661 |
$631,654 |
Total current liabilities |
$1,859,179 |
$1,788,416 |
Inventory |
$587,469 |
$564,995 |
Long-term liabilities |
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Total current assets |
$1,626,327 |
$1,504,165 |
Debt |
$7,286,047 |
$6,603,376 |
Long-term assets |
Other liabilities |
$1,463,160 |
$1,345,529 |
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Investments |
$3,054,022 |
$2,828,183 |
Total liabilities |
$10,608,386 |
$9,737,321 |
Plant, property, and equipment |
$8,496,955 |
$8,480,373 |
OWNERS’ EQUITY |
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Goodwill |
$347,454 |
$346,379 |
Common stock |
$1,458,869 |
$1,454,384 |
Intangible assets |
$1,157,959 |
$956,418 |
Retained earnings |
$2,615,462 |
$2,923,813 |
Total owners’ equity |
$4,074,331 |
$4,378,197 |
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TOTAL LIABILITIES |
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TOTAL ASSETS |
$14,682,717 |
$14,115,518 |
AND OWNERS’ EQUITY |
$14,682,717 |
$14,115,518 |
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Current ratio = Current assets/ Current liabilties
Current ratio for 2013 = 1,504,165/1,788,416 = 0.84
Current ratio for 2014 = 1,626327/1,859,179 = 0.87
Quick ratio = (Current assets - Inventory)/ Current liabilties
Quick ratio (2013) =(1504165-564995)/1788416 = 0.53
Quick ratio (2014) =(1626327-587469)/1859179 = 0.56
Cash Ratio = Cash/ Current liabilties
Cash ratio (2013) = 187,230/1788416 = 0.1047
Cash ratio (2014) = 190710/1859179 =0.1026
Yes, these warrant a concern to the shareholders since the company has a current ratio less than 1. This means the company does not have enough current assets to cover for the current liabilities. The company will have to take on short term borrowing which is not a good thing for investors since it increases debt.
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