Current Ratio : Current Ratio determines whether a company is able to pay off its short term liabilities by current assets of the company. Current ratio of a company is ascertained by dividing the current assets by current liabilities of the company. Acid-Test Ratio: It is a liquidity ratio which measures the company’s ability to meet its short term obligations by the liquid assets of the company. It is computed by dividing the high liquid assets of the company by its current liabilities. Times Interest Earned: The ratio which measures a company’s ability to pay its obligation is called a times interest earned. It is computed by dividing the net income before interest and taxes by the interest expense of the company. Requirement 1: : Whether the company would meet the eligibility for the loan.

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Chapter 16, Problem 20P

To determine

Current Ratio:

Current Ratio determines whether a company is able to pay off its short term liabilities by current assets of the company. Current ratio of a company is ascertained by dividing the current assets by current liabilities of the company.

Acid-Test Ratio:

It is a liquidity ratio which measures the company’s ability to meet its short term obligations by the liquid assets of the company. It is computed by dividing the high liquid assets of the company by its current liabilities.

Times Interest Earned:

The ratio which measures a company’s ability to pay its obligation is called a times interest earned. It is computed by dividing the net income before interest and taxes by the interest expense of the company.

Requirement 1:

:

Whether the company would meet the eligibility for the loan.

Requirement 2:

To determine

To State:

The advice to R concerning the machine.

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