In: Accounting
Using the financial information in the following tables, compute the required ratios for AJ Ltd
ABC COMPANY | |||
BALANCE SHEET | |||
AS OF DECEMBER 31, 2018 | |||
ASSETS | 2018 | 2017 | 2016 |
Current assets | |||
Cash | $501,992 | $434,215 | $375,141 |
Accounts receivable | 335,272 | 302,514 | 241,764 |
Inventory | 515,174 | 505,321 | 310,885 |
Prepaid expenses | 251,874 | 231,100 | 136,388 |
Total current assets | $1,604,312 | $1,473,150 | $1,064,178 |
Property, plant, and equipment | 765,215 | 735,531 | 705,132 |
Accumulated depreciation | -218,284 | -196,842 | -175,400 |
TOTAL ASSETS | $2,151,243 | $2,011,839 | $1,593,910 |
LIABILITIES | |||
Current liabilities | |||
Accounts payable | $248,494 | $366,864 | $322,156 |
Accrued liabilities | 122,192 | 216,533 | 215,474 |
Income taxes payable | 10,645 | 25,698 | 22,349 |
Current portion of long-term debt | 42,200 | 42,200 | 42,200 |
Total current liabilities | $423,531 | $651,295 | $602,179 |
Long-term liabilities | |||
Long-term debt | 425,311 | 400,311 | 375,100 |
TOTAL LIABILITIES | $848,842 | $1,051,606 | $977,279 |
STOCKHOLDERS’ EQUITY | |||
Common stock | $370,124 | $356,758 | $320,841 |
Additional paid-in capital | 29,546 | 24,881 | 21,910 |
Retained earnings | 902,731 | 578,594 | 273,880 |
Total stockholders’ equity | $1,302,401 | $960,233 | $616,631 |
LIQUIDITY RATIOS: | 12/31/2018 | 12/31/2017 | Change | % Change |
Current ratio | ||||
Current assets/Current liabilities | ||||
Quick ratio | ||||
(Current assets – Inventory)/Current liabilities |
12/31/2018 | 12/31/2017 | Change | % change | |
Current ratio | 3.78 | 2.26 | 1.52 (increase) | 67.25% |
Quick ratio | 2.57 | 1.48 | 1.09 (increase) | 73.64% |
1 Current ratio = current assets / current liabilities
Current ratio in 2017 = 1,473,150 / 651,295 = 2.26 times
2018 current ratio = 1,604,312 / 423,531= 3.78 times
Current ratio change from 2017 to 2018
= 3.78 - 2.26 = 1.52 times
% change = (change / base year ratio) × 100
Base year is 2017
% change = (1.52 / 2.26) × 100 = 67.25%
2 Quick ratio = (current assets - inventory) / current liabilities
Quick ratio in 2017
= (1,473,150 - 505,321) / 651,295 = 1.48 times
2018 Quick ratio
= (1,604,312 - 515,174) / 423,531 = 2.57 times
Change in quick ratio from 2017 to 2018
= 2.57 - 1.48 = 1.09 times
Change in % = (1.09 / 1.48) × 100 = 73.64%
The changes in current ratio from 2017 to 2018 is 1.52 times and change in quick ratio from 2017 to 2018 is 1.09 times.The both current ratio and quick is increase, it indicates that liquidity of the company is improved.
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