# AddEx LO6 - EXERCISE 13-4 LIQUIDITY ANALYSES FOR TWO...

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EXERCISE 13-4 LIQUIDITY ANALYSES FOR TWO COMPANIES LO 4 1. Calculations (all dollar amounts in millions): Ready Meal Easy Cooking Company a. Current ratio \$7,171/\$8,429 = .85 to 1 \$5,853/\$4,998 = .1.17 to 1 b. Quick assets \$1,866 + \$68 + \$1,882 \$683+ \$966 + \$2,142 = \$3,816 = \$3,791 Acid-test or \$3,816/\$8,429 = .45 to 1 \$3,791/\$4,998 = .76 to 1 Quick ratio 2. Easy Cooking current and acid-test (or quick) ratios are higher than Ready Meal Based on these measures, Easy Cooking appears to be more liquid than Ready Meal. 3. Other ratios that can be used to more fully assess the liquidity of these two companies are these: cash flow from operations to current liabilities ratio, accounts receivable turnover ratio, number of days’ sales in receivables, inventory turnover ratio, number of days’ sales in inventory, and cash to cash operating cycle.

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EXERCISE 13-6 SOLVENCY ANALYSIS LO 4 1. a. Debt-to-equity ratio: Total liabilities/Total shareholders’ equity At 12/31/06: (\$350,000 + \$600,000)/\$1,650,000 = \$950,000/\$1,650,000 = .58 to 1 At 12/31/05: (\$405,000 + \$800,000)/\$1,500,000 = \$1,205,000/\$1,500,000 = .80 to 1 b. Times interest earned for 2006 (Net income + Interest expense + Income tax expense)/Interest expense: (\$150,000 + \$89,000 + \$111,000)/\$89,000 = \$350,000/\$89,000 = 3.93 to 1 c. Debt service coverage for 2006 (Cash flows from operations before interest and tax payments)/Interest and principal payments: (\$185,000 + \$89,000+ \$96,000*)/(\$89,000 + \$275,000**) =
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## This note was uploaded on 10/19/2011 for the course ACCT 2241 taught by Professor Cumming during the Spring '11 term at Dalhousie.

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AddEx LO6 - EXERCISE 13-4 LIQUIDITY ANALYSES FOR TWO...

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