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FIN 201 Unit 2 Solutions

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FIN 201 Unit 2 Solutions
FIN 201 SOLUTION SET – UNIT TWO
CHAPTER 3
3‐2

Liquidity Ratios The top part of Ramakrishnan, Inc,’s 2012 and 2011 balance sheets is listed below
(in millions of dollars).

Current assets:

2012 2011 Current liabilities:

Cash and marketable

securities

Accrued wages and

$ 34

$ 25

taxes

2012 2011

$ 32 $ 31

Accounts receivable

143

128

Accounts payable

Inventory

206

187

Notes payable

Total

$383

$340

Total

$175

87

$195

76

76 68

Calculate Ramakrishnan, Inc.’s current ratio, quick ratio, and cash ratio for 2012 and 2011.

2012

2011

$383m.

$340m.

Current ratio =

——— = 1.96 times

$195m.

———— = 1.94 times

$175m.

$383m. ‐ $206m. $340m. ‐ $187m.
Quick ratio (acid‐test ratio) = ——————— = 0.91 times ———————— = 0.87 times

$195m. $175m.

Cash ratio =

———— = 0.17 times —————— = 0.14 times

$34m.

$195m.

$25m.

$175m.

3-3

Asset Management Ratios Tater and Pepper Corp. reported sales for 2012 of $23 million. Tater and
Pepper listed $5.6 million of inventory on its balance sheet. Using a 365 day year, how many days did Tater and Pepper’s inventory stay on the premises? How many times per year did Tater and
Pepper’s inventory turn over?
$5.6m. x 365
Days’ sales in inventory = —————— = 88.87 days
$23m.

Inventory turnover

$23m.
= ———— = 4.11 times

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