   Chapter 17, Problem 17.6EX

Chapter
Section
Textbook Problem

Current position analysisThe following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:   Current Year Previous Year Current assets:     Cash $414,000$ 320,000 Marketable securities 496,800 336,000 Accounts and notes receivable (net) 619,200 464,000 Inventories 351,900 272.000 Prepaid expenses 188,100 208,000 Total current assets $2,070,000$1,600,000 Current liabilities:     Accounts and notes payable (short-term) $675,000$ 600,000 Accrued liabilities 225,000 200,000 Total current liabilities $900,000$ 800,000 a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.b. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?

A .

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

To compute: Current position analysis for current year and previous year.

Given info: Items of current asset and current liabilities

Explanation

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.

Formula:

C

B .

To determine

To provide: Conclusion towards company’s ability to meet the currently maturing debt.

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