how Will long term bonds effect current ratio, acid test ratio, and debt to equity ratio?how will purchase inventory effect Current ratio, acid test ratio, debt to equity ratio?how will these effect the ratios mention above: retirement of bonds, sale of common stock, purchase of short-term investment for cash, anddecision to refinance on a long term basis some currently maturing debt?   ,

Question
Asked Sep 6, 2019

how Will long term bonds effect current ratio, acid test ratio, and debt to equity ratio?

how will purchase inventory effect Current ratio, acid test ratio, debt to equity ratio?

how will these effect the ratios mention above: retirement of bonds, sale of common stock, purchase of short-term investment for cash, and

decision to refinance on a long term basis some currently maturing debt?

 

 

 

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Step 1

As the student has posted multiple questions and not mentioned which questions to be answered, the solutions to the first 2 questions are provided. Kindly re-post the unanswered questions as separate question.

Step 2

Current Ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations i.e. dues to be paid within 1 year. Ideal Ratio is 2:1

Current Ratio = Current Assets  ÷ Current Liabilities

Acid Test Ratio or Quick ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations immediately. Ideal ratio is 1:1

Quick Ratio = Quick Assets ÷ Current Liabilities

Quick Assets = Cash+ Marketable Securities + Accounts Receivable

Debt to equity ratio is a financial ratio measuring the relationship of total outside liabilities to its shareholder’s equity. Ideal ratio 1:1.5

Debt to equity ratio =  Outside Liabilities ÷ Shareholder’s Equity

Outside Liabilities = Short-term Liabilities + Long-term Liabilities

Step 3

Effect of Long-term bonds-

Long-term bonds are not current liabilities of an organization. Therefore, they do not have any effect on the current ratio and acid-test ratio.

Long-term bonds are long-term liabilities and they directly effect the debt to equity ratio.

 

Effect of  Inventory Purchased-

Inventory is a part of Current assets, therefore any change in inventory value will effect the current asset. In case inventory is purchased on account, then t...

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Accounting Ratio Analysis

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