Question

Liquidity Analyses for Kellogg's and General Mills The following information was summarized from the balance sheets included in the Form 10-K for the 2015 fiscal year of Kellogg Company and Subsidiaries at January 2, 2016, and General Mills, Inc. and Subsidiaries at May 31, 2015: Kellogg's General Mills 5251 1.250 (in millions) Cash and cash equivalents Accounts receivable, net Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Total current liabilities "Described as "receivables" by General Mills Described as "other current assets" by Kellogg's. $3,236 $5,739 $3,785 $4,690.1 Required: 1. Using the information provided, compute the following for each company at the end of 2015: Round your answers to two decimal places. Kellogg's General Mills a. Current ratio b. Quick ratio 0.56 0.50 to 1 to: 0.77 0.68 to 1 to 1 X X

Answer 1

(a) Current ratio = Current assets / Current liabilities

For Kellogs:

Current assets = $3236, Current liabilities = $5739

Putting these values in the above formula, we get,

Current ratio = $3236 / $5739 = 0.56

For General Mills:

Current assets = $3785.7, Current liabilities = $4890.1

Putting these values in the above formula, we get,

Current ratio = $3785.7 / $4890.1 = 0.77

(b) Quick ratio = Current assets – Inventories – Prepaid expenses / Current liabilities

Kellogs:

Current assets = $3236, Current liabilities = $5739, Inventories = $1250, Prepaid expenses = $391

Putting these values in the above formula, we get,

Quick ratio = ($3236 - $1250 - $391) / $5739

Quick ratio = $1595 / $5739 = 0.28

General Mills:

Current assets = $3785.7, Current liabilities = $4890.1, Inventories = $1540.9, Prepaid expenses = $423.8

Putting these values in the above formula, we get,

Quick ratio = ($3785.7 - $1540.9 - $423.8) / $4890.1

Quick ratio = $1821 / $4890.1 = 0.37