Question

Just Dew It Corporation reports the following balance sheet information for 2017 and 2018. JUST DEW IT CORPORATION 2017 and 2018 Balance Sheets Assets Liabilities and Owners' Equity 2017 2018 2017 2018 Current assets Current liabilities Cash $10,450 $10,000 Accounts payable $70,750 $63,000 Accounts receivable 27,800 28,750 Notes payable 49,500 48,000 Inventory 63,200 63,100 Total $120,250 $111,000 Total $101,450 $101,850 Long-term debt $64,900 $62,700 Owners' equity Common stock and paid-in surplus $90,000 $90,000 Fixed assets Retained earnings 144,300 182,150 Net plant and equipment $318,000 $344,000 Total $234,300 $272,150 Total assets $419,450 $445,850 Total liabilities and owners' equity $419,450 $445,850Based on the balance sheets given for Just Dew It: a. Calculate the current ratio for each year. b. Calculate the quick ratio for each year.c. Calculate the cash ratio for each year. d. Calculate the NWC to total assets ratio for each year. e. Calculate the debt-equity ratio and equity multiplier for each year. f. Calculate the total debt ratio and long-term debt ratio for each year.

Answer 1

Solution :

a). Current Ratio :

$\text{current ratio} = \frac{\text{current asset}}{\text{current liability}}$

2017 current ration = $\frac{101450}{120250}$

                               = 0.8436

2018 current ration = $\frac{101850}{111000}$

                               = 0.9175

b). Quick ratio :

$\text{quick ratio} = \frac{\text{current asset - inventory}}{\text{current liability}}$

2017 quick ration = $\frac{101450 - 63200}{120250}$

                               = 0.3180

2018 quick ration = $\frac{101850-63100}{111000}$

                               = 0.3490

c). Cash ratio :

$\text{cash ratio} = \frac{\text{cash}}{\text{current liability}}$

2017 cash ration = $\frac{10450}{120250}$

                               = 0.0869

2018 cash ration = $\frac{10000}{111000}$

                               = 0.0900

d). NWC to the total assets ratio :

$\text{NWC to total assets ratio } = \frac{\text{current assets - current liabilities}}{\text{total assets}}$

2017 NWC to total assets ratio = $\frac{101450-120250}{419450}$

                                                  = -0.0448  

2018 NWC to total assets ratio = $\frac{101850-111000}{445850}$

                                                  = -0.0205

e). Debt equity ratio :

$\text{debt equity ratio} = \frac{\text{total debt }}{\text{total equity}}$

2017 debt equity ratio = $\frac{64900+101450}{234300}$

                                     = 0.7099

2018 debt equity ratio = $\frac{62700+101850}{272150}$

                                    = 0.6046

$\text{equity multiplier} = \frac{\text{total assets }}{\text{stock holder's equity}}$

2017 equity multiplier = $\frac{419450}{234300}$

                                    = 1.7902

2018 equity multiplier = $\frac{445850}{272150}$

                                    = 1.6382

f). Total debt ration :

 $\text{total debt ratio} = \frac{\text{total debt }}{\text{total assets}}$

2017 total debt ratio = $\frac{64900+101450}{419450}$

                                = 0.3965

2018 total debt ratio = $\frac{62700+101850}{445850}$

                                 = 0.3690

Long term debt ratio :

$\text{long term debt ratio} = \frac{\text{long term debt }}{\text{total assets}}$

2017 long term debt ratio = $\frac{64900}{419450}$

                                          = 0.1547

2018 long term debt ratio = $\frac{62700}{445850}$

                                           = 0.1406