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Current Position Analysis Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had...

Current Position Analysis

Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had the following current assets and current liabilities at the end of two recent years:

Current Year
(in millions)Previous Year
(in millions)

Cash and cash equivalents$2,544 $2,722

Short-term investments, at cost1,807 5,054

Accounts and notes receivable, net5,745 5,184

Inventories1,893 1,261

Prepaid expenses and other current assets631 467

Short-term obligations252 2,678

Accounts payable6,058 5,962

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

Current YearPrevious Year

1. Current ratio

2. Quick ratio

b. The liquidity of Sherwood has increased  some over this time period. Both the current and quick ratios have increased . Sherwood is a strong  company with ample  resources for meeting short-term obligations. Its liquidity as measured by the current and quick ratios has improved  during this period.

Solutions

Expert Solution

Current Year

Current ratio = Current asset/Current liability

Current asset = Cash and cash equivalents + Short-term investments, at cost + Accounts and notes receivable, net + Inventories + Prepaid expenses and other current assets

Current asset = 2,544 + 1,807 + 5,745 + 1,893 + 631

Current asset = 12,620

Current liability = Short-term obligations + Accounts payable and other current liabilities

Current liability = 252 + 6,058

Current liability = 6,310

Current ratio = 12,620 / 6,310

Current ratio = 2

Quick ratio = Quick asset/Current liability

Quick asset = Cash and cash equivalents + Short-term investments, at cost + Accounts and notes receivable, net

Quick asset = 2,544 + 1,807 + 5,745

Quick asset = 10,096

Current liability = Short-term obligations + Accounts payable and other current liabilities + Income taxes payable

Current liability = 252 + 6,058

Current liability = 6,310

Quick ratio = 10,096 / 6,310

Quick ratio = 1.6

.

Prior Year

Current ratio = Current asset/Current liability

Current asset = Cash and cash equivalents + Short-term investments, at cost + Accounts and notes receivable, net + Inventories + Prepaid expenses and other current assets

Current asset = 2,722 + 5,054 + 5,184 + 1,261 + 467

Current asset = 14,688

Current liability = Short-term obligations + Accounts payable and other current liabilities

Current liability = 2,678 + 5,962

Current liability = 8,640

Current ratio = 14,688 / 8,640

Current ratio = 1.7

Quick ratio = Quick asset/Current liability

Quick  asset = Cash and cash equivalents + Short-term investments, at cost + Accounts and notes receivable, net

Quick  asset = 2,722 + 5,054 + 5,184

Quick  asset = 12,960

Current liability = Short-term obligations + Accounts payable and other current liabilities

Current liability = 2,678 + 5,962

Current liability = 8,640

Current ratio = 12,960 / 8,640

Quick ratio = 1.5

Current Year Prior Year
1. Current ratio 2.0 1.7
2. Quick ratio 1.6 1.5

ekkarill92 answered 2 years ago
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