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 $ 10,450 $ 10,000 Accounts payable $ 70,750 $ 63,000 Accounts receivable 27,800 28,750 Notes payable 49,500 48,000 Inventory 63,200 63,100 Total $ 120,250 $ 111,000 Total $ 101,450 $ 101,850 Long-term debt $ 64,900 $ 62,700 Owners' equity Common stock and paid-in surplus $ 90,000 $ 90,000 Fixed assets Retained earnings 144,300 182,150 Net plant and equipment $ 318,000 $ 344,000 Total $ 234,300 $ 272,150 Total assets $ 419,450 $ 445,850 Total liabilities and owners' equity $ 419,450 $ 445,850 Based on the balance sheets given for Just Dew It, calculate the following financial ratios for the year 2017.

a. Current ratio

b. Quick ratio

c. Cash ratio

d. NWC to total assets ratio

e. Debt-equity ratio and equity multiplier

f. Total debt ratio and long-term debt ratio

Answer 1

a. Current Ratio = Current Assets / Current Liabilities

Current Assets

Accounts Receivable = $27,800

Inventory = $63,200

Cash = $10,450

Current Assets = $101,450

Current Liabilities

Accounts Payable = $70,750

Notes Payable = $49,500

Current Liabilities = $120,250

Current Ratio = $ 101,450 / $ 120,250

= 0.84 times

b. Quick Ratio = Quick Assets / Current Liabilities

Quick Assets = Current Assets - Inventory

Quick Assets = $ 101,450 - $ 63,200

= $ 38,250

Quick Ratio = $38,250 / $120,250

= 0.32 times

c. Cash Ratio = Cash / Current Liabilities

= $10,450 / $120,250

= 0.086 times

d. NWC to Total Assets Ratio = NCW / Total Assets

Net Working Capital = Total Assets - Total Liabilities

= $101,450 - $120,250

= ($18,800)

NWC to Total Assets Ratio = ($18,800) / $419,450

= (0.04) times

e. Debt Equity Ratio = Long Term Debts / (Owners Equity + Retained Earning)

= $64,900 / ($ 90,000+ $ 144,300)

Debt Equity Ratio = $64,900 / $234,300

Debt Equity Ratio = 0.28 times

Equity Multiplier = Total Assets / Stakeholder's Equity

Equity Multiplier = $419,450 / $234,300

= 1.79 times

f. Total Debt Ratio = Total Debt / Total Assets

= $185,150 / $419,450

= 0.44 times

Long Term Debt Ratio = Long Term / Total Assets

= $ 64,900 / $ 419,450

= 0.15 times