Question

Just Dew It Corporation reports the following balance sheet information for 2008 and 2009. JUST DEW IT CORPORATION 2008 and 2009 Balance Sheets Assets Liabilities and Owners' Equity 2008 2009 2008 2009 Current assets Current liabilities Cash $ 10,250 $ 10,750 Accounts payable $ 72,250 $ 58,000 Accounts receivable 28,850 28,800 Notes payable 46,500 45,500 Inventory 64,600 64,900 Total $ 118,750 $ 103,500 Total $ 103,700 $ 104,450 Long-term debt $ 57,900 $ 64,300 Owners' equity Common stock and paid-in surplus $ 80,000 $ 80,000 Fixed assets Retained earnings 177,050 206,650 Net plant and equipment $ 330,000 $ 350,000 Total $ 257,050 $ 286,650 Total assets $ 433,700 $ 454,450 Total liabilities and owners' equity $ 433,700 $ 454,450 Requirement 1: Based on the balance sheets given for Just Dew It, calculate the following financial ratios for the year 2008. (a) Current ratio (b) Quick ratio (c) Cash ratio (d) NWC to total assets ratio (e) Debt-equity ratio and equity multiplier (f) Total debt ratio and Long-term debt ratio Requirement 2: Based on the balance sheets given for Just Dew It, calculate the following financial ratios for the year 2009. (a) Current ratio (b) Quick ratio (c) Cash ratio (d) NWC to total assets ratio (e) Debt-equity ratio and equity multiplier (f) Total debt ratio and Long-term debt ratio

WHEN READING, THE FIRST NUMBERS ARE 2008, SECOND ARE 2009. FOR EXAMPLE CASH IN 2008 IS $10,250 AND CASH IN 2009 IS $10,750

Answer 1

Answer of Part 1:

Part A:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $103,700 / $118,750
Current Ratio = 0.87:1

Part B:

Quick Ratio = (Current Assets – Inventory) / Current Liabilities
Quick Ratio = ($103,700 - $64,600) / $118,750
Quick Ratio = $39,100 / $118,750
Quick Ratio = 0.33:1

Part c:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $10,250 / $118,750
Cash Ratio = 0.09:1

Part D:

Net Working Capital = Current Assets – Current Liabilities
Net Working Capital = $103,700 - $118,750
Net Working Capital = - $15,050

NWC to Total Assets = Net working Capital / Total Assets
NWC to Total Assets = - $15,050 / $433,700
NWC to Total Assets = -0.03

Answer of Part 2:

Part A:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $104,450 / $103,500
Current Ratio = 1.01:1

Part B:

Quick Ratio = (Current Assets – Inventory) / Current Liabilities
Quick Ratio = ($104,450 - $64,900) / $103,500
Quick Ratio = $39,550 / $103,500
Quick Ratio = 0.38:1

Part c:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $10,750 / $103,500
Cash Ratio = 0.10:1

Part D:

Net Working Capital = Current Assets – Current Liabilities
Net Working Capital = $104,450 - $103,500
Net Working Capital = $950

NWC to Total Assets = Net working Capital / Total Assets
NWC to Total Assets = -$950 / $454,450
NWC to Total Assets = 0.002