a)
To calculate: The current ratio
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
a)
Answer to Problem 17QP
The current ratio for the year 2011 and 2012 is 1.32 times and 1.38 times respectively.
Explanation of Solution
Given information:
- The total current assets (2011) are $75,598.
- The total current liabilities (2011) are $57,217.
- The total current assets (2012) are $83,848.
- The total current liabilities (2012) are $60,648.
Formula to calculate the current ratio:
Compute current ratio for the year 2011:
Compute current ratio for the year 2012:
Hence, the current ratio for the year 2011 and 2012 is 1.32 times and 1.38 times respectively.
b)
To calculate: The quick ratio.
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
b)
Answer to Problem 17QP
The quick ratio for the year 2011 and 2012 is 0.58 times and 0.61 times respectively.
Explanation of Solution
Given information:
- The total current asset (2011) is $75,598.
- Inventory (2011) is $42,636.
- The total current liabilities (2011) are $57,217.
- The total current asset (2012) is $83,848.
- Inventory (2012) is $46,915.
- The total current liabilities (2012) are $60,648.
Formula to calculate the current ratio:
Compute quick ratio for the year 2011:
Compute quick ratio for the year 2012:
Hence, the quick ratio for the year 2011 and 2012 is 0.58 times and 0.61 times respectively.
c)
To calculate: The cash ratio.
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
c)
Answer to Problem 17QP
The cash ratio for the year 2011 and 2012 is 0.16 times and 0.18 times respectively.
Explanation of Solution
Given information:
- Cash (2011) is $9,279.
- Total current liabilities (2011) are $57,217.
- Cash (2012) is $11,173
- Total current liabilities (2012) are $60,648.
Formula to calculate the cash ratio:
Compute cash ratio for the year 2011:
Compute quick ratio for the year 2012:
Hence, the cash ratio for the year 2011 and 2012 is 0.16 times and 0.18 times respectively.
d)
To calculate: The net working capital to the ratio of total assets
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
d)
Answer to Problem 17QP
The net working capital to total asset ratio for the year 2011 and 2012 is 5.29% and 6.08% respectively.
Explanation of Solution
Given information:
- The total current asset (2011) $75,598.
- The total asset (2011) is 347,645.
- The total current liabilities (2011) are $57,217.
- The total current asset (2012) is $83,848.
- The total asset (2012) is $381,815.
- The total current liabilities (2012) are $60,648.
Formula to calculate the net working capital:
Note: It is needed to compute the net working capital to calculate the net working capital to total asset ratio.
Compute the net working capital for the year 2011:
Compute the net working capital for the year 2012:
Hence, the net working capital for the year 2011 and 2012 is $18,381 and $23,200 respectively.
Formula to calculate the net working capital to total asset ratio:
Compute the net working capital to total asset ratio for the year 2011:
Compute the net working capital to total asset ratio for the year 2012:
Hence, the net working capital to total asset ratio for the year 2011 and 2012 is 0.0529 or 5.29% and 0.0608 or 6.08% respectively.
e)
To calculate: The ratio of total debt.
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
e)
Answer to Problem 17QP
The debt equity ratio and equity multiplier ratio for the year 2011 and 2012 are 0.39 times and 0.33 times, 1.39 times and 1.33 times respectively.
Explanation of Solution
Given information:
- The total current liabilities (2011) are $57,217.
- The total long term debts (2011) are 40,000.
- The total equity (2011) is $250,428.
- The total current liabilities (2012) are $60,648.
- The total long term debts (2012) are $35,000.
- The total equity (2012) is $286,167.
Formula to calculate the total debt value:
Note: It is needed to compute the value of total debt to calculate the total debt ratio.
Compute the total debt value for the year 2011:
Compute the total debt value for the year 2012:
Hence, the total debt value for the year 2011 and 2012 is $97,217 and $95,648 respectively.
Formula to calculate the total debt ratio:
Compute the total debt ratio for the year 2011:
Compute the total debt ratio for the year 2012:
Hence, the total debt ratio for the year 2011 and 2012 is 0.39 times and 0.33 times respectively.
Formula to calculate the equity multiplier ratio:
Compute the equity multiplier ratio for the year 2011:
Compute the equity multiplier ratio for the year 2012:
Hence, the equity multiplier ratio for the year 2011 and 2012 is 1.39 times and 1.33 times respectively.
f)
To calculate: The long-term debt.
Introduction:
The financial ratios are an important tool for effective decision-making. They compare different figures taken from the financial statement to obtain information about the performance of the firm.
f)
Answer to Problem 17QP
The total debt ratio and long-debt ratio for the year 2011 and 2012 are 0.28 times and 0.25 times, 0.14 times and 0.11 times respectively.
Explanation of Solution
Given information:
- The total asset (2011) is 347,645.
- The total equity (2011) is $250,428.
- The total long-term debt (2011) is $40,000.
- The total asset (2012) is 381,815.
- The total equity (2012) is $286,167.
- The total long-term debt (2012) is $35,000.
Formula to calculate the total debt ratio:
Compute the total debt ratio for the year 2011:
Compute the total debt ratio for the year 2012:
Hence, the total debt ratio for the year 2011 and 2012 is 0.28 times and 0.25 times respectively.
Formula to calculate the long-term debt ratio:
Compute the long-debt ratio for the year 2011:
Compute the long-debt ratio for the year 2012:
Hence, the long-debt ratio for the year 2011 and 2012 is 0.14 times and 0.11 times respectively.
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Chapter 3 Solutions
Fundamentals of Corporate Finance Alternate Edition
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