Current Position Analysis Sherwood, Inc., the parent company of Tasty snack food

Question

Current Position Analysis

Sherwood, Inc., the parent company of Tasty snack foods and Super beverages, had the following current assets and current liabilities at the end of two recent years:

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

Current Year
(in millions) Previous Year
(in millions) Cash and cash equivalents $3,661 $3,716 Short-term investments, at cost 2,600 6,901 Accounts and notes receivable, net 8,265 7,079 Inventories 1,816 2,422 Prepaid expenses and other current assets 605 896 Short-term obligations 323 3,429 Accounts payable 7,747 7,631

Explanation / Answer

Answer - Calculation of Current Ratio and Quick Ratio

Current Year Previous Year 1. Current Ratio Current Assets = Cash and Cash equivalents+ Short term Investments + Accounts and Notes Receivable + Inventory + Prepaid expenses and other current assets =3661+2600+8265+1816+605 =3716+6901+7079+2422+896                          16,947                                21,014 Current Liabilities = Short Term Obligations + Accounts Payable =323+7747 =3429+7631                             8,070                                11,060 Current Ratio = Current Assets / Current Liabilities =16947 / 8070 =21014 / 11060 2.1 1.9 2. Quick Ratio Quick Assets = Current Assets - Inventories - Prepaid expenses =16947-1816-605 =21014-2422-896                          14,526                                17,696 Current Liabilities (Taking figure frm above)                             8,070                                11,060 Quick Ratio = Quick Assets / Current Liabilities =14526 / 8070 =17696 / 11060 1.8 1.6

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