Question

From the Roots Up Company Balance Sheet For the Year Ended December 31, 200X (In Thousands $223 886 214 7.5% 29.7% .06% 29.1% 7.2% 13.4% 16.7% 8.9% 39.0% 82.8% 399 497 264 1.160 2.463 402 13.5% 1.0% 0.05 3.19 18.6% 552 110 442 Current Assets Cash Accts/Notes Rec-Trade Bad Debt Reserve - Total Accts/Rec-Net Accts/Notes Rec-Other Raw Materials Finished Goods Other Inventory Total Inventory Total Current Assets Non-Current Assets Machinery & Equipment Furniture & Fixtures Leasehold Improvements Transportation Equipment Gross Fixed Assets Accumulated Depreciation - Total Fixed Assets - Net Operating Non-Current Assets Total Non-Current Assets Total Assets Current Liabilities ST Loans Payable-Bank Accounts Payable-Trade Wages/Salaries Payable Non-Op Current Liabilities Total Current Liabilities Non-Current Liabilities Long-Term Dept-Bank Due to Officers/Stakeholders Total Non-Current Liabilities Total Liabilities Net Worth Paid in Capital Retained Earnings Total Net Worth Total Liabilities & Net Worth Working Capital Tang Net Worth-Actual 3.7% 14.9% 2.3% 17.2% 100.0% 510 2973 442 1.7% 14.9% 1.7% 7.8% 26.0% 231 773 400 450 850 1,623 13.5% 15.1% 28.6% 54.6% 698 652 1,350 2,973 1.690 $1,350 23.5% 21.9% 45.4 100.0% 56.8% 45.4%

1. Assume that you have a company with this Balance Sheet
   • Calculate
     1. Current Ratio
     2. Quick Ratio
     3. What do each tell you about the company's financial situation?

Answer 1

Ans.	Current ratio   =   Total current assets / Total current liabilities
	$2,463 / $773
	3.19 : 1
Ans.	Acid test ratio   =   (Total current assets - Inventory) / Total current liabilities
	($2,463 - $1,160) / $773
	$1,303 / $773
	1.69 : 1
	The ideal current ratio is 2 : 1. The company's current ratio is 3.19 : 1 , which shows sound position
	for the company. Higher current ratio shows that the company has the ability to pay its short term
	debts more likely.
	The ideal acid test ratio is 1 : 1 . The company's acid test ratio is 1.69 : 1 which shows a better liquidity
	position for the coompany.