Explanation Analyze the financial health of Construction G using the financial ratios: Compute the quick ratio: Quick ratio = Quick Assets Current liabilities = $ 69 , 919 + $ 90 , 869 + $ 288 , 210 – $ 76 , 508 $ 348 , 704 = $ 372 , 490 $ 348 , 704 = 1.06 Therefore, the quick ratio is 1.06 times. Compute the current ratio : Current Ratio Current Year Current assets: (a) $618,651 Current liabilities (b) $348,704 Current ratio = (a) / (b) 1.77 Table (1) Therefore, current ratio is 1.77 . Compute the current liabilities to net worth ratio: Current Year Current liabilities: (a) $348,704 Net worth (total equity) (b) $504,891 Current liabilities to net worth ratio = (a) / (b) 0.69 or 69% Table (2) Therefore, the current liabilities to net worth ratio are 69%. Compute the debt-equity ratio: Current Year Total liabilities (a) $555,519 Total equity (b) $504,891 Debt-equity ratio = (a) / (b) 1.10 Table (3) Compute the fixed assets to net worth ratio: Current Year Fixed assets: (a) $344,734 Net worth (total equity) (b) $504,891 Fixed assets to net worth ratio = (a) / (b) 0.68 or 68% Table (4) Compute the current assets to total assets ratio: Current assets to total assets ratio = Current assets / Total assets = $ 618 , 651 / $ 1 , 060 , 410 = 0.58 o r 58 % Therefore, the current assets to total assets ratio is 0.58 times or 58% Compute the collection period and receivable turns with retention: Collection period = Accounts Receivable × 365 Revenues = ( ( $ 288 , 210 + $ 265 , 896 ) / 2 ) × 365 $ 1 , 844 , 491 = $ 277 , 053 × 365 $ 1 , 844 , 491 = 54.8 days Therefore, the collection period is 54.8 days . Receivable turns = 365 Collection period = 365 54.8 days = 6.7 times Therefore, the receivable turn is 6.7 times . Compute the collection period and receivable turns without retention: Collection period = Accounts Receivable × 365 Revenues = ( [ ( $ 288 , 210 – $ 76 , 508 ) + ( $ 265 , 896 – $ 97 , 120 ) ] / 2 ) × 365 $ 1 , 844 , 491 = $ 190 , 239 × 365 $ 1 , 844 , 491 = 37.6 days Therefore, the collection period is 37.6 days . Receivable turns = 365 Collection period = 365 37.6 days = 9.7 times Therefore, the receivable turn is 9.7 times . Compute the average age of accounts payable and payable turns with retention: ( Average age of Accounts payable ) = Accounts payable × 365 Total cost of revenue = ( ( $ 135 , 468 + $ 118 , 813 ) / 2 ) × 365 $ 1 , 618 , 041 = $127,140 × 365 $ 1 , 618 , 041 = 28.7 days Therefore, the average age of accounts payable is 28.7 days . Payable turns = 365 Average Age of Accounts Payable = 365 28.7 days = 12.7 times Therefore, the payable turn is 12.7 times . Compute the assets to revenues ratio for the heavy / Highway Company: Assets to revenues ratio = Average Total Assets Revenues = ( $ 1 , 060 , 410 + $ 983 , 819 ) / 2 $ 1 , 844 , 491 = $ 1 , 022 , 114 $ 1 , 844 , 491 = 0

Construction Accounting And Financial Management (4th Edition)

4th Edition

ISBN: 9780135232873

Author: Steven J. Peterson MBA PE

Publisher: PEARSON

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Chapter 6, Problem 43CP

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Analyze the financial health of Construction G using the financial ratios.

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Chapter 6, Problem 41P

Chapter 7, Problem 1DQ

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Chapter 6 Solutions

Construction Accounting And Financial Management (4th Edition)

Ch. 6 - When calculating a ratio with numbers from the...Ch. 6 - How does the method of depreciation affect...Ch. 6 - How does retention affect the financial ratios?...Ch. 6 - Prob. 4P Ch. 6 - Prob. 5P Ch. 6 - Determine the current liabilities to net worth...Ch. 6 - Determine the debt to equity ratio for the...Ch. 6 - Prob. 8P Ch. 6 - Determine the current assets to total assets ratio...Ch. 6 - Prob. 10P

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