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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Ratio Analysis

Intel Corporation provided the following information on its balance sheet and statement of cash flows:

Chapter 8, Problem 72E, Ratio Analysis Intel Corporation provided the following information on its balance sheet and

Required:

1. Calculate the (a) current ratio, (b) quick ratio, (c) cash ratio, and (d) operating cash flow ratio. ( Note: Round answers to two decimal places.)

2. CONCEPTUAL CONNECTION Interpret these results.

3. CONCEPTUAL CONNECTION Assume that Intel, as a requirement of one of its loans, must maintain a current ratio of at least 2.30. Given the large amount of cash, how could Intel accomplish this on December 31 (be specific as to dollar amounts)?

To determine

(a)

Introduction:

Every investor or lender is concerned with the liquidity ratios of the company. It helps them analyze the company’s ability to meet short term obligations.

To calculate:

Liquidity Ratios

 (a)Current ratio
 (b)Quick ratio
 (c)Cash ratio
 (d)Operating cash flow ratio.

Explanation

(a) Current Ratio = Current AssetsCurrent Liabilities

Current Assets = Cash & Cash equivalents + Marketable Securities + Receivables + Inventories + Other Current Assets

Current Assets = $6,598,000,000 + $3,404,000,000 + $2,709,000,000 + $4,314,000,000 + $2,416,000,000

Current Assets = $19,441,000,000

Current Liabilities = 8,514,000,000

Current Ratio = $19,441,000,000$8,514,000,000

Current Ratio = 2.28

(b) Quick Ratio = Quick AssetsCurrent Liabilities

Quick Assets = Cash & Cash equivalents + Marketable Securities + Receivables

Quick Assets = $6,598,000,000 + $3,404,000,000 + $2,709,000,000

Quick Assets = $12,711,000,000

Current Liabilities = 8,514,000,000

Quick Ratio = $12,711,000,000$8,514,000,000

Quick Ratio = 1

To determine

(b)

Introduction:

Every investor or lender is concerned with the liquidity ratios of the company. It helps them analyze the company’s ability to meet short term obligations.

To interpret:

Liquidity Ratios.

To determine

(c)

Introduction:

Every investor or lender is concerned with the liquidity ratios of the company. It helps them analyze the company’s ability to meet short term obligations.

To discuss:

Accomplishment of desired current ratio.

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