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Week Five Exercise Assignment (Financial Ratios)

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Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10: Edison Cash Short-term investments Accounts receivable Inventory Prepaid expenses Accounts payable Notes payable: short-term Accrued payables Long-term liabilities $6,000 3,000 2,000 1,000 800 200 3,100 300 3,800 Stagg $5,000 2,500 2,500 2,500 800 200 3,100 300 3,800 $4,000 2,000 3,000 4,000 800 200 3,100 300 3,800 1. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most Answer Current ratio = Current assets / Current Liabilities 3.56 2. 3.69 Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc: 20X5 Net credit sales Cost of goods sold 20X4 $832,000 $760,000 530,000 400,000 Cash, Dec. 31 125,000 110,000 Average Accounts receivable 205,000 156,000 Average Inventory Accounts payable, Dec. 31 70,000 50,000 115,000 108,000 Instructions a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places. Accounts Receivable Turnover = Net Credit Sales / Average account receivable 4.06 Inventory Turnover = COGS / Average Inventory 7.57 3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The com-pany reported the following inform Net sales Interest expense Income tax expense Preferred dividend ...
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