Bethesda Mining Company reports the following balance sheet information for 2015 and 2016.
| BETHESDA MINING COMPANY Balance Sheets as of December 31, 2015 and 2016 |
|||||||||||||||||
| 2015 | 2016 | 2015 | 2016 | ||||||||||||||
| Assets | Liabilities and Owners’ Equity | ||||||||||||||||
| Current assets | Current liabilities | ||||||||||||||||
| Cash | $ | 65,470 | $ | 82,487 | Accounts payable | $ | 186,922 | $ | 194,611 | ||||||||
| Accounts receivable | 65,281 | 85,639 | Notes payable | 82,020 | 133,588 | ||||||||||||
| Inventory | 116,676 | 181,549 | Total | $ | 268,942 | $ | 328,199 | ||||||||||
| Total | $ | 247,427 | $ | 349,675 | Long-term debt | $ | 231,000 | $ | 167,750 | ||||||||
| Owners’ equity | |||||||||||||||||
| Common stock and paid-in surplus | $ | 224,000 | $ | 224,000 | |||||||||||||
| Fixed assets | Accumulated retained earnings | 182,232 | 219,704 | ||||||||||||||
| Net plant and equipment | $ | 658,747 | $ | 589,978 | Total | $ | 406,232 | $ | 443,704 | ||||||||
| Total assets | $ | 906,174 | $ | 939,653 | Total liabilities and owners’ equity | $ | 906,174 | $ | 939,653 | ||||||||
Based on the balance sheets given for Bethesda Mining, calculate
the following financial ratios for each year:
a. Current ratio. (Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
| Current ratio | ||
| 2015 | times | |
| 2016 | times | |
b. Quick ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Quick ratio | ||
| 2015 | times | |
| 2016 | times | |
c. Cash ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Cash ratio | ||
| 2015 | times | |
| 2016 | times | |
d. Debt−equity ratio and equity multiplier. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Debt−equity ratio | Equity multiplier | ||||||
| 2015 | times | times | |||||
| 2016 | times | times | |||||
e. Total debt ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Total debt ratio | |||
| 2015 | times | ||
| 2016 | times | ||
a) CURRENT RATIO
= Total Current asset / Total current liability
current ratio in 2015: = 247,427 / 268,942
= 0.92 times
The current ratio is 0.92 which means the company’s currents assets are 0.92 times less than its current liabilities.
current ratio in 2016 = 349,675 / 328,199
=1.06 times
The current ratio is 1.06 which means the company’s currents assets are 1.06 times more than its current liabilities.
b)QUICK RATIO
Quick ratio = (cash + marketable security +net account receivable) / current liabilities
Quick ratio in 2015 =
liquid asset = cash +account receivable
= 65,470+65,281
=130751
current liabilities =268,942
Quick ratio = 130751 / 268942
= 0.48 :1 times
Quick ratio in 2016 =
liquid asset = 82,487+85639
=168126
current liabilities = 328,199
Quick ratio = 168126 / 328,199
=0.51 :1 times
both years ratios may not be able to fully pay off its current liabilities in the short term
c) CASH RATIO
= cash and cash equivalents + marketable security / current liabilities
cash ratio in 2015 :
cash = 65470
current liability = 268,942
cash ratio = 65470 / 268942
= 0.24:1 times
It means insufficient cash on hand exists to pay off short-term debt
Cash ratio in 2016 :
cash = 82,487
current liability = 328199
cash ratio = 82487 / 328199
= 0.25:1
It means insufficient cash on hand exists to pay off short-term debt.ratio above 1 is considered to be a good liquidity measure.
d) DEBT EQUITY RATIO AND EQUITY MULTIPLIER
= Short term debt + long term debt / owners equity
debt equity ratio on 2015 =
long term debt = 231000
owners equity = 406232
Debt equity ratio = 231000 / 406232
= 0.56 :1 times
it indicates that the portion of assets provided by stockholders is greater than the portion of assets provided by creditors
Debt equity ratio on 2016 =
= 167750 /443704
= 0.37 :1 times
EQUITY MULTIPLIER
equity multiplier is a financial leverage ratio that measures the amount of a firm's assets that are financed by its shareholders by comparing total assets with total shareholder's equity.
= TOTAL ASSET / SHARE HOLDERS EQUITY
Equity multiplier 2015 =
Total asset = 906,174
total equity = 406232
= 906174 / 406232
= 2.23 times
Equity multiplier 2016 =
Total asset = 939,653
total equity = 443704
= 2.11 times
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