Quick Ratio Calculate the quick ration for Smith & Sons Inc for 2015 and 2016 and comment...

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Accounting

Quick Ratio
Calculate the quick ration for Smith& Sons Inc for 2015 and 2016 and comment on the company’sworking capital position. Did the company’s ability to pay itscurrent liabilities improve over the two years?
Quick ratio = (cash and cashequivalents + Short term investments + Accounts receivable)/CurrentLiabilities
Smith & Sons,Inc
Balance Sheet
Decemober 31, 2016 and2015
(In millions) 2016 2015
Assets
Current assets
Cash and cash equivalents 200 400
Accounts receivable 900 800
Inventory 500 650
Other Current assets 400 250
Total Current assets 2000 2100
Property, plant &equipment (net)           2,600           2,500
Other Assets           5,700           5,900
Total assets          10,300          10,500
Labilities and Stockholders'eEquity
Current Liabilites           3,000           2,900
Long-term liabilities           5,000           5,400
Total Labilities           8,000           8,300
Stockholders'sequity-common           2,300           2,200
Total Labilities andStockholders' Equity          10,300          10,500

Answer & Explanation Solved by verified expert

4.4 Ratings (856 Votes)

Calculatio of the quick ratio for Smith Sons Inc for 2015 and 2016 Ans Quick Ratio Or Acid Test Ratio measures the liquidity of the firm It basically measures the companys ability to meet the current liabilities of the firm on a very short basis It is an indicator of short term solvency of the companyThe quick assets are those assets which can be easily converted into cash within a short period of time Quick Ratio Cash and Cash Equivalents Short Term Investments Accounts Receivables Current Laibilities Quick Ratio for 2015 400 250 800 2900 05 1 Quick Ratio for 2016 200 400 900 3000 05 1 i Assuming that other current assets are convetible into cash within short See Answer

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Smith & Sons,Inc
Balance Sheet
Decemober 31, 2016 and2015
(In millions)	2016	2015
Assets
Current assets
Cash and cash equivalents	200	400
Accounts receivable	900	800
Inventory	500	650
Other Current assets	400	250
Total Current assets	2000	2100

Property, plant &equipment (net)	2,600	2,500
Other Assets	5,700	5,900
Total assets	10,300	10,500

Labilities and Stockholders'eEquity
Current Liabilites	3,000	2,900
Long-term liabilities	5,000	5,400
Total Labilities	8,000	8,300
Stockholders'sequity-common	2,300	2,200
Total Labilities andStockholders' Equity	10,300	10,500