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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