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A firm has the following balance sheet information: total assets = $100,000; current assets = $30,000; inventories = $10,000; cash = $5,000; total liabilities = $30,000; current liabilities = $15,000; notes payable = $2,000. What are the firm’s quick and NWC-to-Total-Assets ratios?

Answer :

letmeanswer

Answer:

Quick ratio = 1.33, NWC to Total assets = 0.15

Explanation:

Given:  

Current assets = $30000

Total assets = $100,000

Inventories = $10,000

Cash = $5000

Total liabilities = $30,000

Current liabilities = $15000

Notes payable = $2000

To calculate firm’s quick asset and NWC-to-Total-Assets ratios, formulas need to be applied:

  Quick ratio = (Current assets-inventory)/Current liabilities

                                    = (30000-10000)/15000

                                      = 1.33(Approx)

NWC to total assets = Net working capital/Total assets

NWC=Current Assets-Current liabilities

                  = (30000-15000) = $15000

Hence NWC to Total assets = (15000/100,000)

                                             = 0.15

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