Ch.3 Homework ANSWERS - 1 Short-term solvency ratios Current ratio = Current assets Current liabilities Current ratio 2008 = $56,260 $38,963 = 1.44

Ch.3 Homework ANSWERS - 1 Short-term solvency ratios...

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1. Short-term solvency ratios: Current ratio = Current assets / Current liabilities Current ratio 2008 = $56,260 / $38,963 = 1.44 times Current ratio 2009 = $60,550 / $43,235 = 1.40 times Quick ratio = (Current assets – Inventory) / Current liabilities Quick ratio 2008 = ($56,260 – 23,084) / $38,963 = 0.85 times Quick ratio 2009 = ($60,550 – 24,650) / $43,235 = 0.83 times Cash ratio = Cash / Current liabilities Cash ratio 2008 = $21,860 / $38,963 = 0.56 times Cash ratio 2009 = $22,050 / $43,235 = 0.51 times Asset utilization ratios: Total asset turnover = Sales / Total assets Total asset turnover = $305,830 / $321,075 = 0.95 times Inventory turnover = Cost of goods sold / Inventory Inventory turnover = $210,935 / $24,650 = 8.56 times
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Receivables turnover = Sales / Accounts receivable Receivables turnover = $305,830 / $13,850 = 22.08 times Long-term solvency ratios: Total debt ratio = (Total assets – Total equity) / Total assets Total debt ratio 2008 = ($290,328 – 176,365) / $290,328 = 0.39 Total debt ratio 2009 = ($321,075 – 192,840) / $321,075 = 0.40 Debt-equity ratio = Total debt / Total equity Debt-equity ratio 2008 = ($38,963 + 75,000) / $176,365 = 0.65 Debt-equity ratio 2009 = ($43,235 + 85,000) / $192,840 = 0.66 Equity multiplier = 1 + D/E Equity multiplier 2008 = 1 + 0.65 = 1.65 Equity multiplier 2009 = 1 + 0.66 = 1.66 Times interest earned= EBIT / Interest Times interest earned= $68,045 / $11,930 = 5.70 times Cash coverage ratio = (EBIT + Depreciation) / Interest
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