Question

o bits east delivs ang uri STILO TO о Scho tas bus соболее toto noite Watts Blago ASSIGNMENT 7.2. A SECOND YEAR'S WORTH OF DATA In FY 2009, the MLK Settlement House has total assets of $900,000 and current assets of $350,000. Its current liabilities are $240,000, and its long-term liabilities are $1,000,000. What are the ratios and what conclusions can you draw now that you have two years' worth of data? uszib On orila Sonia LEO 5 Od rob P

Answer 1

Explanation:

Current Assets	$350,000
Current Liability	$240,000
Total Assets	$900,000
Long term Liability	$1,000,000

1) From above we can derive two ratios.

2) Current Ratio:

= Current Assets ÷ Current Liability

= $ 350,000 ÷ $ 240,000

= 1.46 : 1

3) Current Ratio indicates the company's capability to pay short term liability with cash generated from its current assets.

4) Here, we can conclude that, for every $1 of liability company has $1.46 dollar to pay.So compamy is liquid and capable enough to pay short term liability .

5) Debt Ratio:

= Total Liabilities ÷ Total Assets

= ( $ 240,000 + $ 1,000,000 ) ÷ $ 900,000

= 1.37

6) The debt ratio indicates the percentage of the total asset amounts that is owed to creditors.

7) The larger the debt ratio, the greater is the company's financial leverage.

8) Here, company has more debt than its own assets, which means its leveraged ( more dependent on creditors) .

9) This company is more dependent on debt, which means they have to pay fix regular interest towards debt, and in long run if they fail to repay the company may need to wound up. Hence its more riskier.

From, above data, we can conclude, its capable to pay short term liability but at the same time more leveraged company.