Accounting HW week 12 PDF

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Accounting HW week 12 Q3. The current ratio and the quick ratio are both measures of liquidity. Explain how the quick ratio overcomes some of the limitations of the current ratio. The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability to pay short-term liabilities (debt and payables) with its shortterm assets (cash, inventory, receivables). The current ratio is calculated by dividing current assets by liabilities. The quick ratio, on the other hand, is a liquidity indicator that filters the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities (you can think of the “quick” part as meaning assets that can be liquidated fast). The quick ratio, also called the “acid-test ratio,” is calculated by adding cash & equivalents, marketable investments and accounts receivables, and dividing that sum by current liabilities. Q7) Different ratios for different situations Asset turnover Turnover. Profit margin Current ratio or quick E12.6) a) Assets decreased by $5000 -0.057 Current liabilities have decreased by $5000 which is -0.1% Non-Current liabilities have increased by $9000 which is 0.289% Equity increased by $80,000 0.136% Assets Current Assets Property plant, Intangibles Liabilities equity Current Non-current Equity Total

2017 8% 92% 5%

2016 9% 91% 5%

4% 31% 65% 100%

5% 33% 62% 100%

Horizontal analysis gives a clearer insight of the success or failure of a business over specified time allowing for the viewer to compare how the business is doing rather than the vertical supplying a lack of financial information.

PSA 12.5) 1.Current 2. Receivables

2:1

1.2:1 234 times

120 times

3. Average collection .5 days

1.3 days

4.Inventory turnover 6.4 days

8.1 days

5. Days in inventory .02 mil 6.Profit 175mil

243 mil

7.Asset turnover

2

.2 mil

2.886

8.Return on assets .060.05 9.Return on shares .34

.45

10.debt to asset

1.2

.43

11.time interest earned 8.7 time

PSB 12.3) a) Profit .162

11.4 times

.154

b) Gross profit .173 .147 c)Asset 2.32 1.32 d)Earning per share 183 cents 123 cents e) Earning ration 14.4 times 16.54 times f) Cash dividend 71% 75% g) debt to asset .22:1 .54:1 b) There has been a slight improvement among the financial information analysed such include brief improvement of profitability ration from .162 to .154 showing business growth in greater amounts of profits and other key business areas c) The limitation of the financial statement analysis is the financial information given may not all be true. Reasoning for this may be time lags or the business trying to perceive a better financial position compared to their actual position...