Financial Ratio And Net Working Capital Calculations

1295 Words Nov 19th, 2015 6 Pages
Quick Ratio
Similar to the current ratio and net working capital calculations, the quick ratio measures a firm’s ability to pay its current liabilities with only quick assets (“Financial Ratio Analysis,”
n.d.). Quick assets can be converted to cash within 90 days (“Financial Ratio Analysis,” n.d.). A stock is an example of a quick asset as it can be sold for cash when the market opens. To calculate the quick ratio, first we add cash, cash equivalents, short term investments and accounts receivables; then we divide the sum by the current liabilities (“Financial Ratio Analysis,” n.d.).
In the case of the nano-brewery, the value of the numerator is $10,972.18. That value is then divided by $4,073 to give us a quick ratio of 2.69. A quick ratio of 2.69 illustrates that the nanobrewery has almost three times more quick assets than current liabilities and is capable of paying short term liabilities with only quick assets. The quick ratio is good and it serves as a signal to indicate that the nano-brewery has strong inflows of assets.
Debt to Equity Ratio
Finally, the debt to equity ratio compares a firm’s total debt to its total equity (“Financial
Ratio Analysis,” n.d.). The debt to equity ratio measures the percentage of a company’s financing that comes from creditors and investors (“Financial Ratio Analysis,” n.d.). This ratio is calculated by dividing total liabilities by total equity. From the balance sheet we know that total liabilities are $43,236 and the total equity is…

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