Question

11. Consider the Ganges Tours, Inc. financial statements below. Calculate the following ratios:a. Current ratio.b. Quick ratio.c. Cash ratio.d. Total Debt ratio

Answer 1

Answer:

a. 1.79

b. 0.78

c. 0.30

d. 0.43

Explanation:

a. The Current Ratio checks if the company can cover it's current  Liabilities with it's current assets. The formula is;

Current Ratio = Current Assets / Current Laibilities

= $305,800 / $170,000

= 1.79

b. The Quick Ratio is similar to the Current Ratio but it calculates if a company can cover it's Current Liabilities with it's liquid assets.

Quick Ratio = Current Assets - Inventory / Current Liabilities

= ($305,800 -$173,800) / $170,000

= 0.78

c. The Cash Ratio checks whether the company can pay it's current Liabilities with it's cash or cash equivalent (Treasury Securities, bank account etc) holdings. Formula is;

Cash Ratio = (Cash+Cash Equivalents) / Current Liabilities

= $50,600 / $170,000

= 0.30

d. Debt ratio shows just how much of the company's assets were acquired through the use of Debt Financing. It's formula is;

Debt Ratio = Current Liabilities + Long Term Liabilities / Total Asssets

= $170,000 +$316,000 / $1,131,800

= 0.43