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USE THE FOLLOWING INFORMATION FOR QUESTION 3: Data for BikeNet Logistics most recent balance sheet and...

USE THE FOLLOWING INFORMATION FOR QUESTION 3:

Data for BikeNet Logistics most recent balance sheet and income statement is presented below:

Sales

$723,000

Cost of goods sold

614,550

Interest expense

33,000

Net income

$ 75,450

Cash & Mkt securities

$ 120,000

Accts Receivables

210,000

Accounts payable

$ 92,000

Inventories

183,000

Long-term debt

100,000

Net fixed assets

320,000

Common equity

641,000

Total assets

$833,000

Total liab. and equity

$833,000

3. Compute BikeNet’s quick ratio (and times-interest-earned (TIE) ratio:

A)   Quick: 1.47, TIE 3.03

B)   Quick: 3.59, TIE 3.29

C)   Quick: 5.13, TIE 3.03

D)   Quick: 8.33, TIE 2.29

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Homework Answers

Answer #1

Quick ratio is the ratio which is used to find out the liquidity of the company.

Quick Ratio = ( Cash + Cash Equivalents + Short Term Investments + Current Receivables ) / Current Liabilities

= (120000 + 210000 ) / 92000

= 330000 / 92000 = 3.59

Times Interest Earned is ratio which indicates company's ability to pay interest payments on its debts

Times Interest Earned = Income before Interest and Taxes / Interest

Income Before Interest and taxes = Sales - Cost of good sold

= 723000 - 614550

= 108450
TIE = 108450 / 33000

= 3.29

The ans is B) Quick: 3.59, TIE 3.29

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