Chapter 17, Problem E17.19E

To determine

Current Ratio: A part of liquidity ratios, current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period. A current ratio is a useful tool for analysis of financials of a company.

Cash Ratio: A ratio that reflects the ability to pay current liabilities by cash and cash equivalents is called cash ratio. It is useful to evaluate the cash available as cash is an important factor for day to day operations for any business.

Acid-test Ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities using only liquid assets that are current assets except for the inventory and prepaid expenses. Also known as quick ratio, it is a part of liquidity ratios, used for the evaluation of a company’s liquidity.

Debt Ratio: It is the ratio between total assets of the company and the total liabilities. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.

Debt to Equity Ratio: This ratio reflects the relationship of company’s total liabilities to total equity. It is used to measure financial leverage. Higher debt to equity ratio means that the company has financed its assets by debts more than the owner’s capital.

a.

To Compute: The current ratio of company B for 2017 and 2018.

To determine

b.

To Compute: The cash ratio of company B for 2017 and 2018.

To determine

c.

To Compute: The acid-test ratio of company B for 2017 and 2018.

To determine

d.

To Compute: The debt ratio of company B for 2017 and 2018.

To determine

e.

To Compute: The debt to equity ratio of company B for 2017 and 2018.