Question

Just Dew It Corporation reports the following balance sheet information for 2017 and 2018.

  

JUST DEW IT CORPORATION 2017 and 2018 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2017				2018					2017				2018
Current assets									Current liabilities
Cash	$	14,200			$	18,260			Accounts payable	$	58,400			$	61,820
Accounts receivable		19,000				23,100			Notes payable		23,400				25,080
Inventory		51,800				54,780
Total	$	85,000			$	96,140			Total	$	81,800			$	86,900
									Long-term debt	$	32,000			$	22,000
									Owners’ equity
									Common stock and paid-in surplus	$	44,000			$	44,000
									Retained earnings		242,200				287,100
Net plant and equipment	$	315,000			$	343,860			Total	$	286,200			$	331,100
Total assets	$	400,000			$	440,000			Total liabilities and owners’ equity	$	400,000			$	440,000

  

Based on the balance sheets given for Just Dew It:

    

a.	Calculate the current ratio for each year. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.	Calculate the quick ratio for each year. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c.	Calculate the cash ratio for each year. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
d.	Calculate the NWC to total assets ratio for each year. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
e.	Calculate the debt-equity ratio and equity multiplier for each year. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
f.	Calculate the total debt ratio and long-term debt ratio for each year. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

a)
Current ratio = Current assets / Current liabilities

Current ratio for 2017 = $85,000 / $81,800 = 1.04

Current ratio for 2018 = $96,140 / $86,900 = 1.11

b)
Quick ratio = (Current assets - inventories) / Current liabilities

Quick ratio for 2017 = ($85,000 - $51,800) / $81,800 = 0.41

Quick ratio for 2018 = ($96,140 - $54,780) / $86,900 = 0.48

c)
Cash ratio = Cash / current liabilities

Cash ratio for 2017 = $14,200 / $81,800 = 0.17

Cash ratio for 2018 = $18,260 / $86,900 = 0.21

d)
NWC to total assets ratio = (Current assets - current liabilities) / Total assets

NWC to total assets ratio for 2017 = ($85,000 - $81,800) / $400,000 = 0.80%

NWC to total assets ratio for 2018 = ($96,140 - $86,900) / $440,000 = 2.10%

e)
Debt to equity ratio = Total debt / Total equity

Debt to equity ratio for 2017 = ($81,800 + $32,000) / $286,200 = 0.40

Debt to equity ratio for 2018 = ($86,900 + $22,000) / $331,100 = 0.33

Equity multiplier = 1 + Debt to equity ratio

Equity multiplier for 2017 = 1 + 0.40 = 1.40

Equity multiplier for 2018 = 1 + 0.33 = 1.33

f)
Debt ratio = Total debt / Total assets

Debt ratio for 2017 = ($81,800 + $32,000) / $400,000 = 0.28

Debt ratio for 2018 = ($86,900 + $22,000) / $440,000 = 0.25

Long term debt ratio = Long term debt / total assets

Long term debt ratio for 2017 = $32,000 / $400,000 = 0.08

Long term debt ratio for 2018 = $22,000 / $440,000 = 0.05