A firm has experienced an increasing currrent ratio but adecreasing operating cash flow to current liabilities ratio duringthe last three years. What is the likely explanation for theseresults?
A firm has experienced an increasing currrent ratio but adecreasing operating cash flow to current liabilities ratio duringthe last three years. What is the likely explanation for theseresults?
Related questions
Ratio of Liabilities to Stockholders' Equity and Times InterestEarned
The following data were taken from the financial statements ofHunter Inc. for December 31 of two recent years:
| Current Year | Previous Year | |||
| Accounts payable | $522,000 | $140,000 | ||
| Current maturities of serial bonds payable | 320,000 | 320,000 | ||
| Serial bonds payable, 10% | 1,300,000 | 1,620,000 | ||
| Common stock, $1 par value | 60,000 | 70,000 | ||
| Paid-in capital in excess of par | 670,000 | 680,000 | ||
| Retained earnings | 2,330,000 | 1,850,000 | ||
The income before income tax was $469,800 and $411,100 for thecurrent and previous years, respectively.
a. Determine the ratio of liabilities tostockholders' equity at the end of each year. Round to one decimalplace.
| Current year | |
| Previous year |
b. Determine the times interest earned ratiofor both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders'equity has improved and the times interest earnedratio has improved from the previous year. Theseresults are the combined result of a larger incomebefore income taxes and lower interest expense inthe current year compared to the previous year.
Working Capital and ShortâTerm LiquidityRatios
Bell Company has a current ratio of 3.00 (3.00:1) on December 31.On that date the companyâs current assets are as follows:
| Cash | $29,000 |
| Short-term investments | 49,400 |
| Accounts receivable (net) | 170,000 |
| Inventory | 200,000 |
| Prepaid expenses | 11,600 |
| Current assets | $460,000 |
Bell Companyâs current liabilities at the beginning of the yearwere $140,000 and during the year its operating activities provideda cash flow of $60,000.
a. What are the firmâs current liabilities on December 31?
b. What is the firmâs working capital on December 31?
c. What is the quick ratio on December 31? Round to 2 decimalpoints.
d. What is the Bellâs operating-cash-flow-to-current-liabilitiesratio? Round to 2 decimal points.
