Question

Bethesda Mining Company reports the following balance sheet information for 2018 and 2019.

BETHESDA MINING COMPANY Balance Sheets as of December 31, 2018 and 2019
		2018			2019				2018			2019
Assets							Liabilities and Owners’ Equity
Current assets							Current liabilities
Cash	$	72,718		$	91,489		Accounts payable	$	185,422		$	193,111
Accounts receivable		66,781			87,139		Notes payable		80,520			132,088
Inventory		113,146			177,607
							Total	$	265,942		$	325,199
Total	$	252,645		$	356,235
							Long-term debt	$	228,000		$	164,750
							Owners’ equity
							Common stock and paid-in surplus	$	227,000		$	227,000
							Accumulated retained earnings		190,750			229,414
Fixed assets
Net plant and equipment	$	659,047		$	590,128		Total	$	417,750		$	456,414
Total assets	$	911,692		$	946,363		Total liabilities and owners’ equity	$	911,692		$	946,363

Calculate the following financial ratios for each year:
a.	Current ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.	Quick ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c.	Cash ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
d.	Debt-equity ratio and equity multiplier. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
e.	Total debt ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

2018:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $252,645 / $265,942
Current Ratio = 0.95

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Quick Ratio = ($252,645 - $113,146) / $265,942
Quick Ratio = 0.52

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $72,718 / $265,942
Cash Ratio = 0.27

Debt-Equity Ratio = Total Liabilities / Total Owners’ Equity
Debt-Equity Ratio = (Current Liabilities + Long-term Debt) / Total Owners’ Equity
Debt-Equity Ratio = ($265,942 + $228,000) / $417,750
Debt-Equity Ratio = 1.18

Equity Multiplier = 1 + Debt-Equity Ratio
Equity Multiplier = 1 + 1.18
Equity Multiplier = 2.18

Total Debt Ratio = Total Liabilities / Total Assets
Total Debt Ratio = (Current Liabilities + Long-term Debt) / Total Assets
Total Debt Ratio = ($265,942 + $228,000) / $911,692
Total Debt Ratio = 0.54

2019:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $356,235 / $325,199
Current Ratio = 1.10

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Quick Ratio = ($356,235 - $177,607) / $325,199
Quick Ratio = 0.55

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $91,489 / $325,199
Cash Ratio = 0.28

Debt-Equity Ratio = Total Liabilities / Total Owners’ Equity
Debt-Equity Ratio = (Current Liabilities + Long-term Debt) / Total Owners’ Equity
Debt-Equity Ratio = ($325,199 + $164,750) / $456,414
Debt-Equity Ratio = 1.07

Equity Multiplier = 1 + Debt-Equity Ratio
Equity Multiplier = 1 + 1.07
Equity Multiplier = 2.07

Total Debt Ratio = Total Liabilities / Total Assets
Total Debt Ratio = (Current Liabilities + Long-term Debt) / Total Assets
Total Debt Ratio = ($325,199 + $164,750) / $946,363
Total Debt Ratio = 0.52