Amfac, Inc.
Written Analysis of the Case
On
AMFAC, INC.
Submitted by:
Irnabel R. Canoy
Pauline Anne B. Ferrero
Jocel Louis Castorico
Submitted to:
Prof. Rosfe Corlae Badoy
Faculty-in-charge
BA 206 – Managerial Accounting
August 15, 2012
1. Current Ratio
Current Ratio = Current Assets___ Current Liabilities = $ 86,000_ 40,000 = 2.15
The current ratio indicates the solvency of the company. Given the current ratio of 2.15, it means that the company has 2.15 times more current assets than current liabilities.
2. Acid Test Ratio (Quick Ratio)
Acid Test Ratio = Cash + Marketable Securities + Current Receivable__ Current Liabilities = 8,000 + 36,000 40,000 = 44,000 40,000 = 1.10 The acid test ratio or quick ratio measures the company’s ability to meet current obligations based on the most liquid assets such as cash, marketable securities, and accounts receivable.
The quick ratio of 1.10 indicates that the company has $ 1.10 in liquid assets for each $ 1.00 of current liabilities.
3. Debt-to-Equity Ratio
Debt – to-Equity Ratio = Total Liabilities _ Shareholders Equity = 40,000 + 60,000 _ 50,000 + 30,000 + 120,000 = 100,000 _ 200,000 = 0.50 or 5 : 5
Debt-to-equity ratio compares the funds provided by creditors to the funds provided by shareholders. Debt equity ratio will increase as more debt is used. This will also increase the risk because the company will be incurring more fixed interest obligations.
This ratio indicates the proportionate of the external equities in relation to internal equities. The given ratio of 0.50 above indicates that external debts are 50% of shareholders funds. In other words, 50% the company’s resources are in the form of debt.
4. Accounts Receivable Turnover
ART = Sales
On
AMFAC, INC.
Submitted by:
Irnabel R. Canoy
Pauline Anne B. Ferrero
Jocel Louis Castorico
Submitted to:
Prof. Rosfe Corlae Badoy
Faculty-in-charge
BA 206 – Managerial Accounting
August 15, 2012
1. Current Ratio
Current Ratio = Current Assets___ Current Liabilities = $ 86,000_ 40,000 = 2.15
The current ratio indicates the solvency of the company. Given the current ratio of 2.15, it means that the company has 2.15 times more current assets than current liabilities.
2. Acid Test Ratio (Quick Ratio)
Acid Test Ratio = Cash + Marketable Securities + Current Receivable__ Current Liabilities = 8,000 + 36,000 40,000 = 44,000 40,000 = 1.10 The acid test ratio or quick ratio measures the company’s ability to meet current obligations based on the most liquid assets such as cash, marketable securities, and accounts receivable.
The quick ratio of 1.10 indicates that the company has $ 1.10 in liquid assets for each $ 1.00 of current liabilities.
3. Debt-to-Equity Ratio
Debt – to-Equity Ratio = Total Liabilities _ Shareholders Equity = 40,000 + 60,000 _ 50,000 + 30,000 + 120,000 = 100,000 _ 200,000 = 0.50 or 5 : 5
Debt-to-equity ratio compares the funds provided by creditors to the funds provided by shareholders. Debt equity ratio will increase as more debt is used. This will also increase the risk because the company will be incurring more fixed interest obligations.
This ratio indicates the proportionate of the external equities in relation to internal equities. The given ratio of 0.50 above indicates that external debts are 50% of shareholders funds. In other words, 50% the company’s resources are in the form of debt.
4. Accounts Receivable Turnover
ART = Sales