Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 10, Problem 2ADM
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.
To compute: The working capital for three years.
B.
To determine
To compute: The current ratio for three years.
C.
To determine
To compute: The quick ratio for three years.
D.
To determine
To interpret: The short-term liquidity for three years from Part C.
E.
To determine
To identify: Whether two measures of Part A and Part B is consistent with analysis done in Part D.
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Chapter 10 Solutions
Financial & Managerial Accounting
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