ANSWER KEY E24-4 - .91 to 1 a ($930 X .70) $570 b ($1,500 X...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
ANSWER KEY Computations are given below which furnish some basis of comparis- on of the two companies: Toulouse Co. Lautrec Co. Composition of current assets Cash 13% 28% Receivables 24% 27% Inventories 63% 45% 100% 100% Computation of various ratios Current ratio ($910 ÷ $305) 2.98 to 1 ($1,140 ÷ $350) 3.26 to 1 Acid-test ratio ($120 + $220) ÷ $305 1.11 to 1 ($320 + $302) ÷ $350 1.78 to 1 Accounts receivable turnover ($930 ÷ $220) 4.23 times $1,500 ÷ $302 4.97 times Inventory turnover 1.14 a times 1.74 b times Cash to current liabilities ($120 ÷ $305) .39 to 1 ($320 ÷ $350)
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: .91 to 1 a ($930 X .70) $570 b ($1,500 X .60) $518 Lautrec Co. appears to be a better short-term credit risk than Toulouse Co. Analysis of various liquidity ratios demonstrates that Lautrec Co. is stronger financially, all other factors being equal, in the short-term. Comparative risk could be judged better if additional inform-ation were available relating to such items as net income, purpose of the loan, due date of current and long-term liabilities, future pro-spects, etc....
View Full Document

Ask a homework question - tutors are online