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