Question

In: Accounting

Go to the web site of the American Cancer Society and look at their 2014 financial...

Go to the web site of the American Cancer Society and look at their 2014 financial statements.

http://www.cancer.org/aboutus/whoweare/financialinformation/combinedfinancialstatements/2014-combined-financial-statements

1) Calculate their two going concern ratios.

Solutions

Expert Solution

Two going concern ratios are:-

1) Current Ratio:- Current Ratio measures the company’s ability to pay its short-term debt with liquid assets, i.e. assets which can be easily converted to cash.

Current Ratio = Current Assets Divided by Current Liabilities

Current Assets consists of Cash and Cash Equivalents (i.e. Cash in Hand, Cash at Bank, etc.), Short Term Investments (i.e. Investments for less than 12 months), Debtors (i.e. Trade Receivable), Bills receiveable, Prepaid Expenses, etc.

Current Assets = $258,514 (i.e. $150,514 + $4,084 + $15,515 + $20,359 + $68,042)

Current Liabilities consists of Creditors (i.e. Accounts Payable), Bills Payable, Short Term Borrowings(i.e Borrowings for less than 12 months), accrued expenses, and any other expenses which are to be payable in less than 12 months.

Current Liabilities = $206,238 (i.e. $57,802 + $89,936 + $45,978 + $2,361 + $10,161)

Current Ratio = Current Assets/Current Liabilities

= $258,514/$206,238

= 1.25

So, Current Ratio = 1.25

2) Debt Ratio :- Total liabilities divided by total assets provides the company’s debt ratio. If total debt is more than total assets (your ratio results in 1 or more), the company is insolvent.

Total Liabilities consists of Current Liabilities, Shareholder's Fund & Long term Liabilities

Total Assets consists of Current Assets, Fixed Assets, Long term Investments and Advances, and other Assets.

Debt Ratio = Total Liabilities Divided by Total Assets

= $680,571/ $1,893,983

= 0.36

So, Debt Ratio = 0.36


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