Hudson Crowe Winery requested that you determine whether the company\'s ability

ID: 2391584 • Letter: H

Question

Hudson Crowe Winery requested that you determine whether the company's ability to pay its current liabilities and long-term debts improved or deteriorated during 2016. To answer this question, compute the following ratios for 2016 and 2015: (a) current ratio, (b) quick ratio, (c) debt ratio, and (d) interest coverage ratio. Round all ratios to two decimal places. Summarize the results of your analysis. ?(click the icon to view the financial information.) To answer this question, compute the following ratios for 2016 and 2015: (a) current ratio, (b) quick ratio, (c) debt ratio, and (d) interest- coverage ratio. Round all ratios to two decimal places. (Abbreviations used: Avg Average, EBIT = Earnings before interest and taxes, LT Long-term, and ST = Short-term.) Begin with a. current ratio. Select the formula and then enter the amounts to calculate the current ratios. 2016 2015

Explanation / Answer

Current Asset = Cash + Short term investment + Accounts Receivable + Inventory + Prepaid Expenses

2016 - Current Asset = 77000+15000+185000+420000+9000 = 706000

2015 - Current Asset = 70000+1000+94000+300000+10000 = 475000

Liquid Asset = Current Asset – Inventory – Prepaid Expenses

2016 - Liquid Asset = 706000-420000-9000 = 277000

2015 - Liquid Asset =475000-300000-10000 = 165000

Total Debt = Total Current Liability + Long term liability

2016 = 170000+190000 = 360000

2015 = 245000+280000 = 525000

2016

2015

Current Ratio = Current Asset / Current Liability

=706000 / 170000 = 4.15

=475000 / 245000 = 1.94

Quick Ratio = Liquid Asset / Current Liability

= 277000 / 170000 = 1.63

= 165000 / 245000 = 0.67

Debt Ratio = Total Debt / Total Asset

= 360000 / 860000 = 0.42

= 525000 / 520000 = 1.01

Interest Coverage Ratio = Income from operation(EBIT) / Interest

= 120000 / 20000 = 6

= 106000 / 33000 = 3.21