Chapter 24, Problem 3UJ

To determine

Current ratio:

Company’s ability to pay back its liabilities with its assets. It provides the estimation of a company’s financial health.

Acid-test ratio:

The acid-test ratio is the company’s ability to pay back its immediate liabilities with its short term assets. This ratio can also be called as a working capital ratio.

Inventory turnover ratio:

The number of times the company sells inventories and over a period of time it is replaced. The ratio can be calculated by dividing average of inventory with cost of goods sold.

(a)

Tocalculate:

A new set of ratios for the fiscal year 2018 for R Company based on the financial statements presented.

Given Information:

All the information related to R Company is provided in the question document.

To determine

(b)

To explain:

The analytical use of each of the six ratios presented, describing what the investors can learn about R Company’s financial stability and operating efficiency.

Given Information:

All the information related to R Company is provided in the question document.

To determine

(c)

To identify:

Thelimitations of ratio analysis.

Given Information:

All the information related to R Company is provided in the question document.