Ratio analysis It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company. Following are the two measures of liquidity: 1. Current ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. 2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable . 3. Working capital : Total current assets minus total current liabilities are the working capital of a company. Vertical analysis : The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis. Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below: Vertical analysis percentage } = Specific item Base amount ( Total current assets ) × 100 To compute: The working capital for each company.

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Answer 1

Question

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

B.

To determine

To compute: The current ratio for each company.

C.

To determine

To compute: The quick ratio for each company.

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

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Answer 2

Question

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

B.

To determine

To compute: The current ratio for each company.

C.

To determine

To compute: The quick ratio for each company.

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

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See solution

Answer 3

Question

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

B.

To determine

To compute: The current ratio for each company.

C.

To determine

To compute: The quick ratio for each company.

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

Expert Solution & Answer

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Answer 4

Question

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

B.

To determine

To compute: The current ratio for each company.

C.

To determine

To compute: The quick ratio for each company.

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

Expert Solution & Answer

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See solution

Answer 5

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

B.

To determine

To compute: The current ratio for each company.

C.

To determine

To compute: The quick ratio for each company.

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

Answer 6

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

Answer 7

Chapter 10, Problem 10.1ADM

A.

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

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

2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.

3. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Vertical analysis: The analysis which compares the percentage change in the financial components in relation to a base item is referred to as vertical analysis.

Vertical analysis percentage: Vertical analysis denotes the percent of financial element or component in relation to a base amount. It is computed as shown below:

Vertical analysispercentage} = Specific itemBase amount(Total current assets) × 100

To compute: The working capital for each company.

Answer 8

B.

To determine

To compute: The current ratio for each company.

Answer 9

B.

To determine

To compute: The current ratio for each company.

Answer 10

C.

To determine

To compute: The quick ratio for each company.

Answer 11

C.

To determine

To compute: The quick ratio for each company.

Answer 12

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

Answer 13

D.

To determine

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

Answer 14

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

Answer 15

E.

To determine

To identify: The company which has the highest debt-paying ability, based on the current ratio.

Answer 16

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

Answer 17

F.

To determine

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

Answer 18

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

Answer 19

G.

To determine

To explain: The reason behind the difference in the result between Part E and Part F.

Answer 20

Expert Solution & Answer

Answer 21

Expert Solution & Answer

Answer 22

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Answer 23

Ch. 10 - Does a discounted note payable provide credit...Ch. 10 - Employees are subject to taxes withheld from their...Ch. 10 - Prob. 3DQ Ch. 10 - Prob. 4DQ Ch. 10 - Prob. 5DQ Ch. 10 - To match revenues and expenses properly, should...Ch. 10 - Prob. 7DQ Ch. 10 - Installment notes require equal periodic payments....Ch. 10 - When should the liability associated with a...Ch. 10 - Prob. 10DQ

Solution Summary: The author explains how Ratio analysis measures the profitability, liquidity, capability, and overall performance of a company.

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To compute: The current ratio for each company.

To compute: The quick ratio for each company.

To Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.

To identify: The company which has the highest debt-paying ability, based on the current ratio.

To identify: The company which has the greater short-term debt-paying ability, based on the quick ratio.

To explain: The reason behind the difference in the result between Part E and Part F.

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Chapter 10 Solutions