Question

The following is the balance sheet and income statement for Metro Eagle Outfitters, in condensed form, plus some information from the cash flow statement.

Balance Sheet	2019				2018				2017
Cash and short-term investments	$	632,992			$	747,044			$	736,693
Accounts receivable		46,521				40,510				37,121
Inventory		334,452				371,514				303,208
Other current assets		129,835				132,420				101,388
Total current assets		1,143,800				1,291,488				1,178,410
Long-lived assets		581,832				644,482				590,802
Total assets	$	1,725,632			$	1,935,970			$	1,769,212
Current liabilities	$	437,902			$	411,401			$	389,837
Total liabilities		504,245				518,386				417,741
Shareholders’ equity		1,221,387				1,417,584				1,351,471
Total debt and equity	$	1,725,632			$	1,935,970			$	1,769,212
Income Statement
Sales	$	3,476,202			$	3,120,265			$	2,945,694
Cost of sales		2,087,480				1,977,471				1,765,143
Gross margin	$	1,388,722			$	1,142,794			$	1,180,551
Operating expenses		986,484				867,385				862,976
Earnings before interest and taxes	$	402,238			$	275,409			$	317,575
Net income	$	234,108			$	151,905			$	140,847
Interest paid in cash		82				184				163
Taxes paid in cash		142,209				99,856				45,937
Cash Flows
Cash flow from operations	$	510,671			$	411,317			$	382,416
Capital expenditures		94,139				89,866				76,304
Dividends		85,792				85,792				83,366

Required:

Calculate the following liquidity ratios for Metro Eagle in 2018 and 2019:

1. Inventory turnover

2. Current ratio.

3. Quick ratio

4. Cash flow ratio

Answer 1

Ans. 1	Inventory turnover = Cost of sales / Average Inventory
	2019	$2,087,480 / $352,983	5.91	times
	2018	$1,977,471 / $337,361	5.86	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	2019	($371,514 + $334,452) / 2	$352,983
	2018	($303,208 + $371,514) / 2	$337,361
Ans. 2	Current ratio   =   Total current assets / Total current liabilities
	2019	$1,143,800 / $437,902	2.61 : 1
	2018	$1,291,488 / $411,401	3.14 : 1
Ans. 3	Quick ratio   =   (Total current assets - Inventory) / Total current liabilities
	2019	($1,143,800 - $334,452) / $437,902	1.85 : 1
	2018	($1,291,488 - $371,514) / $411,401	2.24 : 1
Ans. 4	Cash flow ratio   =   Cash flow from operations / Total current liabilities
	2019	$510,671 / $437,902	1.17
	2018	$411,317 / $411,401	1.00