Question

Financial? ratios: Liquidity.??The financial statements for Tyler? Toys, Inc. are shown in the table below. Calculate...

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.

Income Statement for Years Ending December 31, 2013 and 2014

2014

2013

Revenue

$14,146,314

$13,566,585

Cost of goods sold

$-8,448,624

$-8,132,222

Selling, general, and
administrative expenses

$-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.

Balance Sheet as of December 31, 2013 and 2014

ASSETS

2014

2013

LIABILITIES

2014

2013

Current assets

Current liabilities

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

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

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

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

TOTAL LIABILITIES

TOTAL ASSETS

$14,682,717

$14,115,518

AND OWNERS’ EQUITY

$14,682,717

$14,115,518

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Homework Answers

Answer #1

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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