Question

The most recent data from the annual balance sheets of N&B Equipment Company and Jing Foodstuffs Corporation are as follows:

Balance Sheet December 31st31st (Millions of dollars)

	Jing Foodstuffs Corporation	N&B Equipment Company		Jing Foodstuffs Corporation	N&B Equipment Company
Assets			Liabilities
Current assets			Current liabilities
Cash	$574	$369	Accounts payable	$0	$0
Accounts receivable	210	135	Accruals	127	0
Inventories	616	396	Notes payable	717	675
Total current assets	$1,400	$900	Total current liabilities	$844	$675
Net fixed assets			Long-term bonds	1,031	825
Net plant and equipment	1,100	1,100	Total debt	$1,875	$1,500
			Common equity
			Common stock	$406	$325
			Retained earnings	219	175
			Total common equity	$625	$500
Total assets	$2,500	$2,000	Total liabilities and   equity	$2,500	$2,000

N&B Equipment Company’s current ratio is__________ , and its quick ratio is__________; Jing Foodstuffs Corporation’s current ratio is____________, and its quick ratio is___________. Note: Round your values to four decimal places.

Answer 1

The current ratio measures the extent to which a firm’s current liabilities are covered by the assets that the firm expects to be converted into cash in the next fiscal year, or its current assets. The current ratio is calculated as follows:

Current Ratio = Current Assets / Current Liabilities

N&B Equipment Company				Jing Foodstuffs Corporation
Current Ratio	=	$900 / $675		Current Ratio	=	$1,400 / $844
	=	1.3333			=	1.6588

The quick ratio, also called the acid test ratio, measures a company’s ability to meet its short-term obligations using its most liquid assets. Because inventories are considered to be the least liquid of a firm’s current assets, the quick ratio excludes inventories from current assets and is calculated as follows:

Quick Ratio = (Current Assets – Inventories) / Current Liabilities

N&B Equipment Company				Jing Foodstuffs Corporation
Quick Ratio	=	($900 – $396) / $675		Quick Ratio	=	($1,400 – $616) / $844
	=	0.7467			=	0.9289

Answer 2

N&B Equipment Company’s current ratio is1.3333   , and its quick ratio is0.7467   ; Jing Foodstuffs Corporation’s current ratio is1.6588   , and its quick ratio is0.9289   . Note: Round your values to four decimal places.