Question

In: Accounting

Below are selected financial information from GoPro Inc., the manufacturer of mountable and wearable cameras and...

Below are selected financial information from GoPro Inc., the manufacturer of mountable and wearable cameras and accessories.  

GoPro, Inc.

Balance Sheet  

                                           FY 2018               FY 2017

Cash & Cash Equivalent    $152,095            $202,504

Marketable Securities                     45,417                 44,886

Accounts Receivable, net             129,216               112,935

Inventory                                        116,458               150,551

Prepaid Expenses                            30,887                 62,811

Total Current Assets                   $474,073             $573,687

Accounts Payable                          $148,478            $138,257

Accrued Liabilities                           135,892              213,030

Unearned Revenue                           15,129                 19,244

Total Current Liabilities               $299,499            $370,531

A. In two paragraphs please define what the Acid-Test ratio is, and explain its importance in the analysis of a company's liquidity position. Then calculate the Acid-Test ratio for FY 2018 and FY 2017.  

Formula is:  Cash & Cash Equivalent + Marketable Securities + Net Receivable

Current Liabilities

B. In two paragraphs please define what the Working Capital is, and explain its importance in the analysis of a company's liquidity position. Then calculate the ratio for FY 2018 and FY 2017.

Formula: Current Assets - Current Liabilities

Solutions

Expert Solution

A) Acid test ratio also known as quick ratio. It measures company's ability to pay off its current liabilities i.e, Any debt that will need to be repaid within a year. It measures the ability to meet current debt immediately. Ideal ratio is 1:1.

The Importance in the analysis of a company's liquidity position is that whether a company has enough short term assets to cover its immediate liabilties.

Acid test ratio for YE 2017-

= (Cash & Cash Equivalent + Marketable Securities + Net Receivable)/ Current Liabilities

= $360325/$351287

= 1.03

Acid test ratio for YE 2018-

= (Cash & Cash Equivalent + Marketable Securities + Net Receivable)/ Current Liabilities

= $326728/$284370

= 1.15

* We are assuming unearned revenue as a long term liability therefore it is not considered in calculating Quick ratio.

B. Working Capital is a measure of cash flow to determine the ability of business to survive financial crisis.

The importance in the analysis of a company's liquidity position is it measures company's ability to pay off short term expenses or debt.

Working Capital of YE 2017-  

= Current Assets - Current Liabilities

= $573,687- $370,531

= $203156

Working Capital of YE 2018-  

= Current Assets - Current Liabilities

= $474,073 - $299,499

= $ 174574

* We assume that company has balance of unearned revenue and considered as current liabilties and would decrease the working capital.

ekkarill92 answered 1 year ago
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