Introduction: Acid test ratio is calculated by dividing a company’s cash and its equivalents, marketable securities, and accounts receivables by its current liabilities. It shows the efficiency of a company to fulfil its current obligations. Here, inventories and prepaid expenses are not included.
The Current ratio and acid test ratio of (a) Company C, (b) Company G, and (c) Company T. Also, to determine the company that is in the best position to pay its short-term obligations.
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FINANCIAL ACCT.FUND.(LOOSELEAF)
- The current ratio is useful in determining a company’s ability to pay obligations when they become due. ____________. True or false?arrow_forwardA company’s current fi nancial position would best be evaluated using the:B . income statement.arrow_forwardIf a company computes its current ratio to be 3.56, what does this mean interms of the company’s current assets and current liabilities?arrow_forward
- Required: (a) You are required to calculate the following ratios:(i) Gross profit margin(ii) Operating profit margin(iii) Expenses to sales(iv) Return on Capital Employed(v) Asset turnover(vi) Non-current asset turnover(vii) Current Ratio(viii) Quick Ratio(ix) Inventory days(x) Receivables days(xi) Payable days(xii) Interest cover (b) In light of your calculations comment on the performance of the company over thelast two years.arrow_forwardRatios provide a _________ measure of a company’s performance and condition. a. Gross b. Relative c. Qualitative d. Definitivearrow_forward1. Provide the equation for each ratio listed. 2. What does each ratio listed tell you about the company? 3. Compare the company ratios to the standard ratios, and give an overall analysis of the company.arrow_forward
- 5.) For each definition, list the “ratio category (or grouping)” that is described by filling in the blanks from (a) to (f) and provide one example for each category or grouping. a) Determines a company’s ability to pay off short term obligations or debts as they come due. ________________________ b) Relates company’s internal performance to the external judgment of the marketplace in terms of what it is worth. ________________________ c) Identifies percentage of earnings paid out to shareholders and what is reinvested for internal growth. ________________________ d) Speed at which company turns over its inventory, receivables and long-term assets. ________________________ e) How a company is financed between debt [lenders] and equity [owners]. ________________________ f) Measures return on sales, assets and total capital. ________________________arrow_forwardRequirements: a. Prepare horizontal analysis based on the above statements presented (for percent: round of your answers to 2 decimal places) Music Lover, Inc.xlsx b. Evaluate the company's financial position and results of operation using the comparative statement analysis i. Short-term solvency analysis ii. Long-term financial position analysis iii. Operating efficiency and profitability analysisarrow_forwardVII. Direction: Compute and interpret. The following comparative financial statements are provided by Avatar Industries. You were asked to compute the different financial ratios and provide your interpretations with regards to profitability, efficiency, liquidity and solvency of the company. Use the Answer Sheet template below to input your answer and solution. AVATAR INDUSTRIES AVATAR INDUSTRIES Comparative Statement of Financial Position For the years 2019 and 2018 Comparative Income Statement For the years 2019 and 2018 2019 2018 2019 2018 ASSETS Current Assets: Sales P200,000 P210,000 Cash & Cash Equivalent P65,000 P70,000 Sales Returns and Allowances 40,000 25,000 Accounts Receivable 40,000 35,000 Net Sales 160,000 185,000 Marketable Secuities 40,000 35,000 Cost of Goods Sold 100,000 115,625 Inventory 100,000 80,000 Gross Profit 60,000 69,375 Total Current Assets 220,000 200,000 160,000 P445,000 P380,000 245,000 Operating Expenses: Fixed Assets Selling Expenses 22,000 25,000 Total…arrow_forward
- If a current asset/current liability has a ratio of 2, what doe it say about the company?arrow_forwardVII. Direction: Compute and interpret. The following comparative financial statements are provided by Avatar Industries. You were asked to compute the different financial ratios and provide your interpretations with regards to profitability, efficiency, liquidity and solvency of the company. Use the Answer Sheet template below to input your answer and solution. AVATAR INDUSTRIES AVATAR INDUSTRIES Comparative Statement of Financial Position For the years 2019 and 2018 Comparative Income Statement For the years 2019 and 2018 2019 2018 2019 2018 ASSETS Current Assets: Sales P200,000 P210,000 Cash & Cash Equivalent P65,000 P70,000 Sales Returns and Allowances 40,000 25,000 Accounts Receivable 40,000 35,000 Net Sales 160,000 185,000 Marketable Securities 40,000 35,000 Cost of Goods Sold 100,000 115,625 Inventory 100,000 80,000 Gross Profit 60,000 69,375 Total Current Assets 245,000 220,000 Operating Expenses: Fixed Assets 200,000 160,000 Selling Expenses 22,000 25,000 Total Assets P445,000…arrow_forwardBelow are three ratios introduced in your text. Describe the purpose for each of them, and also state the formula for calculating them: a. Revenue Per Employee Ratio: b. Quick Ratio: c. Fixed Assets Ratio:arrow_forward