# Compute the following ratios and show the answer to two digits past the decimal: (i) the current ratio, (ii) the acid-test ratio. Use Excel formulas in the cells indicated below in yellow for calculating your ratios.

## Instructions

 INSTRUCTIONS: Complete parts A and B of this exercise. Examples can be found in Chapter 21 of your textbook. Be sure to notice that Part A is a balance sheet and Part B is an income statement. Also, be sure to note that the most recent year is shown on the left in these financial statements. Formulas and examples for interpretation of results can be found in Table 21-1 of your textbook or the last worksheet tab of this file.

## Part A – Balance sheet Analysis

 Part A – Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. 1. Using Excel formulas, prepare a vertical analysis for 2017 for the balance sheet below (only use 2017). 2. Using Excel formulas, prepare a horizontal analysis for the balance sheet below (use 2016 & 2017 – also note the order of the columns below). 3. Compute the following ratios and show the answer to two digits past the decimal: (i) the current ratio, (ii) the acid-test ratio. Use Excel formulas in the cells indicated below in yellow for calculating your ratios. Formulas for this exercise are located on page 779 in your textbook or on the Table 21-1 tab in this Excel file. Current ratio: Acid-test ratio: 4. Using Table 21-1, how would you interpret the current ratio result you computed above? 5. Using Table 21-1, how would you interpret the acid-test ratio result you computed above? Green’s Landscaping Balance Sheet December 31, 2016 and 2017 2017 2016 Assets Current Assets Cash \$5,275 \$4,507 Accounts receivable 7,305 5,118 Merchandise inventory 45,522 48,722 Total current assets 58,102 58,347 Plant and equipment Equipment 20,173 25,942 Total assets 78,275 84,289 Liabilities Current liabilities Accounts payable 3,809 4,476 Wages payable 2,432 1,973 Total current liabilities 6,241 6,449 Long-term liabilities Mortgage note payable 36,454 45,899 Total liabilities 42,695 52,348 Owner’s Equity A. Green, capital 35,580 31,941 Total liabilities and owner’s equity 78,275 84,289

## Part B – Income Statement

 Part B – Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. 1. Using the information below, prepare a vertical analysis for the income statement for 2017. 2. Using the information below, prepare a horizontal analysis of the income statement from 2017. 3. In which areas, if any, has the company seen increases since 2016? 4. In which areas, if any, has the company seen decreases since 2016? 5. Compute the following ratio and show the answer to two digits past the decimal. Use an Excel formula in the cell indicated below in yellow for calculating your ratio. Operating ratio: 6. Using table 21-1, how would you interpret this ratio? Artie’s Painting Income Statement For the Years Ending December 31, 2016 and 2017 2017 2016 Net sales \$24,789 \$23,642 Cost of goods sold 15,323 14,239 Gross profit 9,466 9,403 Operating expenses 3,873 3,702 Net income 5,593 5,701

## Table 21-1 from Business Math

 Cleaves, C., Hobbs, M., & Noble, J. (2017). Business Math (11th ed.). New York City, NY: Pearson Education, p.779.
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