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A.
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 Explain: That the working capital is a good measure of relative liquidity in comparing the two companies.
B.
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 quick ratio for each company.
C.
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 interpret: The results of quick ratio.
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Chapter 10 Solutions
Financial & Managerial Accounting
- A company has decided to purchase equipment, needing to borrow $100,000 from its local bank to make the purchase. The bank gives the company two options: (a) 60-month installment note with 4% interest or (b) 120-month installment note with 8% interest. Lenders often charge a higher interest rate for longer-term loans to compensate for additional risk of lending for a longer time period. Record $100,000 cash received from the issuance of the 120-month installment note with 8% interest.Record $100,000 cash received from the issuance of the 120-month installment note with 8% interest. Select the options to display a 120-month installment note with 12% interest. How much of the principal amount is due after the 60th payment?arrow_forward!??arrow_forwardaccounting questionarrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
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