Question

The Endot Manufacturing Company, a manufacturer and wholesaler of widgets, has provided you with the following financial information. The Company has asked you to make an analysis of the firm’s financial condition. In addition to the information given below, you have been informed that the firm has no lease payments but has principal payments of $2 million per year on its Long-term debt. Endot uses a 365-day year in preparing its ratios. Endot has 5,000,000 common shares outstanding. Endot’s financial statements are as follows:Balance Sheet as of December 31, 2014 (Millions of Dollars)Cash 45Accounts Payable 45Marketable Securities 33Notes Payable 45Accounts Receivable 66Other Current Liabilities 21Inventory 159Total Current Liabilities 111Total Current Assets 303Total Long Term Liabilities 24Total Liabilities135Gross Fixed Assets 225Less Depreciation 78Common Stock 114Net Fixed Assets 147Retained Earnings 201Total Shareholder Equity 315Total Assets 450Total Liabilities and Equity 450Statement of Income and Expenses for Year Ended December 31, 2014 (Millions of Dollars)Net Sales 795.0Costs of Goods Sold 660.0Gross Profit 135.0Fixed Expense 73.5EBITDA 61.5Depreciation Expense 12.0EBIT 49.5Interest Expense 4.5EBT 45.0Taxes (40%) 18.0Net Income 27.0What was Endot's Quick (Acid Test) Ratio? a. 0.37 b. 1.30c. 1.73d. 2.00e. 2.73

Answer 1

Quick ratio = 1.30 (Option C)

Explanation:

Quick ratio or acid test ratio is calculated as follows:

(Cash plus marketable securities plus accounts receivable ) divide by total current liabilities

In our question, we have been given with the data:

Cash = 45 million

Marketable securities = 33 million, accounts receivable = 66 million, total current laibailities = 111 million

So, let us now put the given values in the above stated formula:

Quick ratio = ( 45 plus 33 plus 66) divide by 111

After calculating we get, 1.30

Therefore, the quick ratio is 1.30