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In: Accounting

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

Solutions

Expert Solution

Answer :

1. Current ratio :

Current ratio = Current assets / Current liabilities

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

Current liabilities = Short-term obligations + Accounts payable

Current Year

Current assets = $2,544 + $1,807 + $5,745 + $1,893 + $631 = $12,620

Current liabilities = $252 + $6,058 = $6,310

Current ratio = $12,620 / $6,310

= 2 : 1

Previous Year

Current assets = $2,722 + $5,054 + $5,184 + $1,261 + $467 = $14,688

Current liabilities = $2,678 + $5,962 = $8,640

Current ratio = $14,688 / $8,640

= 1.7 : 1

2. Quick ratio :

Quick ratio = Quick assets / Current liabilities

Quick assets = Cash and cash equivalents + Short-term investments + Accounts and notes receivable

Current Year

Quick ratio = ($2,544 + $1,807 + $5,745) / $6,310

= $10,096 / $6,310

= 1.6 : 1

Previous Year

Quick ratio = ($2,722 + $5,054 + $5,184) / $8,640

= $12,960 / $8,640

= 1.5 : 1

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

ekkarill92 answered 2 years ago
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