Just Dew It Corporation reports the following balance sheet information for 2014 and 2015.

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
Total	$	77,875			$	90,090			Total	$	68,075			$	72,030
									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
Net plant and equipment	$	272,125			$	329,910			Total	$	246,925			$	326,970
Total assets	$	350,000			$	420,000			Total liabilities and owners’ equity	$	350,000			$	420,000

 

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.)

   

	2014	2015
Current ratio	times	times

  

b.	Calculate the quick ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

   

	2014	2015
Quick ratio	times	times

 

c.	Calculate the cash ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

   

	2014	2015
Cash ratio	times	times

 

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.)

    

	2014	2015
NWC ratio	%	%

 

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.)

 

	2014	2015
Debt-equity ratio	times	times
Equity multiplier

   

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.)

 

	2014	2015
Total debt ratio	times	times
Long-term debt ratio	times	times

Explanation:

 a.

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