Problem 3-17 Calculating Financial Ratios [LO2]
Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. |
JUST DEW IT CORPORATION 2014 and 2015 Balance Sheets | ||||||||||||||||
Assets | Liabilities and Owners’ Equity | |||||||||||||||
2014 | 2015 | 2014 | 2015 | |||||||||||||
Current assets | Current liabilities | |||||||||||||||
Cash | $ | 11,025 | $ | 11,970 | Accounts payable | $ | 43,750 | $ | 47,250 | |||||||
Accounts receivable | 22,225 | 26,670 | Notes payable | 24,325 | 24,780 | |||||||||||
Inventory | 44,625 | 51,450 | ||||||||||||||
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Total | $ | 77,875 | $ | 90,090 | Total | $ | 68,075 | $ | 72,030 | |||||||
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Long-term debt | $ | 35,000 | $ | 21,000 | ||||||||||||
Owners’ equity | ||||||||||||||||
Common stock and paid-in surplus | $ | 42,000 | $ | 42,000 | ||||||||||||
Retained earnings | 204,925 | 284,970 | ||||||||||||||
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Net plant and equipment | $ | 272,125 | $ | 329,910 | Total | $ | 246,925 | $ | 326,970 | |||||||
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Total assets | $ | 350,000 | $ | 420,000 | Total liabilities and owners’ equity | $ | 350,000 | $ | 420,000 | |||||||
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Based on the balance sheets given for Just Dew It: |
a. |
Calculate the current ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
Current ratio | times | times |
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b. |
Calculate the quick ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
Quick ratio | times | times |
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c. |
Calculate the cash ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
Cash ratio | times | times |
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d. |
Calculate the NWC to total assets ratio for each year. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
NWC ratio | % | % |
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e. |
Calculate the debt–equity ratio and equity multiplier for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
Debt-equity ratio | times | times |
Equity multiplier | ||
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f. |
Calculate the total debt ratio and long-term debt ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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2014 | 2015 | |
Total debt ratio | times | times |
Long-term debt ratio | times | times |
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a.
b.
c.
d.
e.
f.
Current ratio | = | Current assets / Current liabilities | |
Current ratio 2014 | = | $77,875 / $68,075 = 1.14 times | |
Current ratio 2015 | = | $90,090 / $72,030 = 1.25 times |
b.
Quick ratio | = | (Current assets – Inventory) / Current liabilities | |
Quick ratio 2014 | = | ($77,875 − 44,625) / $68,075 = .49 times | |
Quick ratio 2015 | = | ($90,090 − 51,450) / $72,030 = .54 times |
c.
Cash ratio | = | Cash / Current liabilities | |
Cash ratio 2014 | = | $11,025 / $68,075 = .16 times | |
Cash ratio 2015 | = | $11,970 / $72,030 = .17 times |
d.
NWC ratio | = | NWC / Total assets | |
NWC ratio 2014 | = | ($77,875 – 68,075) / $350,000 = .0280, or 2.80% | |
NWC ratio 2015 | = | ($90,090 − 72,030) / $420,000 = .0430, or 4.30% |
e.
Debt-equity ratio | = | Total debt / Total equity | |
Debt-equity ratio 2014 | = | ($68,075 + 35,000) / $246,925 = .42 times | |
Debt-equity ratio 2015 | = | ($72,030 + 21,000) / $326,970 = .28 times |
Equity multiplier | = | 1 + D/E | |
Equity multiplier 2014 | = | 1 + .42 = 1.42 | |
Equity multiplier 2015 | = | 1 + .28 = 1.28 |
f.
Total debt ratio | = | (Total assets – Total equity) / Total assets | |
Total debt ratio 2014 | = | ($350,000 − 246,925) / $350,000 = .29 times | |
Total debt ratio 2015 | = | ($420,000 − 326,970) / $420,000 = .22 times |
Long-term debt ratio | = | Long-term debt / (Long-term debt + Total equity) | |
Long-term debt ratio 2014 | = | $35,000 / ($35,000 + 246,925) = .12 times | |
Long-term debt ratio 2015 | = | $21,000 / ($21,000 + 326,970) = .06 times |