Asked by Josie Pagnucco on Apr 29, 2024
Verified
Neiger Corporation has provided the following financial data: 
Required:
a.What is the company's working capital at the end of Year 2?
b.What is the company's current ratio at the end of Year 2?
c.What is the company's acid-test (quick)ratio at the end of Year 2?
d.What is the company's times interest earned ratio for Year 2?
e.What is the company's debt-to-equity ratio at the end of Year 2?
f.What is the company's equity multiplier at the end of Year 2?
Acid-test Ratio
A strict measure used to assess if a company possesses sufficient current assets to pay off its short-term obligations without the need to liquidate its stock.
Times Interest
A metric that evaluates a firm's capability to handle its debt responsibilities using its present earnings.
Equity Multiplier
A financial ratio that measures a company's use of debt financing by comparing total assets to shareholders' equity.
- Proceed with arithmetic evaluations and become aware of the significance of various financial metrics.
- Analyze the capability of a firm to manage its short-term financial needs by investigating working capital, current ratio, and acid-test ratio.
- Determine a company's leverage and risk through debt-to-equity ratio, equity multiplier, and times interest earned ratio.
Verified Answer
= $463,000 - $226,000 = $237,000
b.Current ratio = Current assets ÷ Current liabilities
= $463,000 ÷ $226,000 = 2.05 (rounded)
c.Acid-test (quick)ratio = Quick assets* ÷ Current liabilities
= $347,000 ÷ $226,000 = 1.54 (rounded)
*Quick assets = Cash + Marketable securities + Current receivables
= $216,000 + $0 + $131,000 = $347,000
d.Times interest earned = Earnings before interest expense and income taxes ÷ Interest expense
= $62,429 ÷ $11,000 = 5.68 (rounded)
e.Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity
= $346,000 ÷ $975,000 = 0.35 (rounded)
f.Equity multiplier = Average total assets* ÷ Average stockholders' equity*
= $1,300,500 ÷ $957,500 = 1.36 (rounded)
*Average total assets = ($1,321,000 + $1,280,000)÷ 2 = $1,300,500
**Average stockholders' equity = ($975,000 + $940,000)÷ 2 = $957,500
Learning Objectives
- Proceed with arithmetic evaluations and become aware of the significance of various financial metrics.
- Analyze the capability of a firm to manage its short-term financial needs by investigating working capital, current ratio, and acid-test ratio.
- Determine a company's leverage and risk through debt-to-equity ratio, equity multiplier, and times interest earned ratio.
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