Acid test ratio or Quick Ratio: Acid test ration is also called Quick ratio. This ratio is calculated by dividing the quick assets (Cash, Cash equivalents, Short term investments and current receivables) by total current liabilities for the year. The formula for Acid test ratio is as follows: A c i d t e s t r a t i o = ( C a s h + C a s h e q u i v a l e n t s + S h o r t t e r m i n v e s t m e n t s + A c c o u n t s r e c e i v a b l e s ) C u r r e n t L i a b i l i t i e s To Indicate: The Change in liquidity from year 2 to 1

Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Please see the attachment for details: Assuming that total assets were $7,000,000 at the beginning of the current fiscal year, determine the following: (a) ratio of fixed assets to long-term liabilities, (b) ratio of liabilities to stockholders’ equity, (c) asset turnover, (d) return on total assets, (e) return on stockholders’ equity, and (f) return on common stockholders’ equity. Round ratios and percentages to one decimal place as appropriate.

Answer 1

Question

Chapter 3, Problem 3.5.3MBA

To determine

Concept Introduction:

Acid test ratio or Quick Ratio:

Acid test ration is also called Quick ratio. This ratio is calculated by dividing the quick assets (Cash, Cash equivalents, Short term investments and current receivables) by total current liabilities for the year. The formula for Acid test ratio is as follows:

Acid test ratio = (Cash + Cash equivalents + Short term investments + Accounts receivables) Current Liabilities

To Indicate:

The Change in liquidity from year 2 to 1

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