Question

Just Dew It Corporation reports the following balance sheet information for 2001 and 2002. Use this information to work Problems 13 through 17. 2001 2002 Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment JUST DEW IT CORPORATION Balance Sheets as of December 31, 2001 and 2002 2001 2002 Liabilities and Owners' Equity Current liabilities $ 9,201 $ 9,682 Accounts payable 28,426 29,481 Notes payable 54,318 63,682 Total $ 91,945 $102,845 Long-term debt Owners' equity S296,418 $327,154 Common stock and paid-in surplus Retained earings Total $388,363 $429,999 Total liabilities and owners' equity $ 71,802 36,108 $107,910 $ 50,000 $ 56,382 50,116 $106,498 S 35,000 $ 75,000 155,453 $230,543 $388,363 $ 75,000 213,501 $288,501 $429,999 Total assets 13. Preparing Standardized Financial Statements Prepare the 2001 and 2002 common-size balance sheets for Just Dew It. 17. Calculating Financial Ratios Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year: a. Current ratio b. Quick ratio c. Cash ratio e. Debt-equity ratio and equity multiplier f. Total debt ratio and long-term debt ratio

Answer 1

17. The financial ratios are as follows :

a. Current ratio for 2001

= Current Assets / Current liabilities

= $91,945/ $107,910

= 0.8521

Current ratio for 2002:

= $102,845/ $106,498

= 0.9657

b. Quick ratio :

= Current assets - Inventory/ current liabilities

= $91,945 - $54,318

= $37,627/ $107,910

= 0.3487

for 2002,

= $39,163/ $106,498

= 0.3677

c. Cash ratio for 2001

= $9,201/ $107,910

= 0.0853

2002:

= $9,682/ $106,498

= 0.0909

e. Debt/ equity ratio for 2001

= Current liabilities + long term debt/ equity

= $107,910 + $50,000/ $230,543

= 0.6849

For 2002 :

= $106,498 + $35,000/ $288,501

= 0.4905

Equity multiplier for 2001:

= total assets / total equity

= $388,363/ $230,543

= 1.6846

for 2002:

= $429,999/ $288,501

= 1.4905

f. Total debt ratio for 2001

= Total liabilities/ total assets

= $107,910 + $50,000/ $388,363

= 0.4066

for 2002:

= $106,498 + $35,000 / $429,999

= 0.3291

long term debt ratio :

= long term debt/ total assets

= $50,000/ $388,363

= 0.1287

for 2002,

= $35,000/ $429,999

= 0.0814