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SST E 3-14. ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bonds Issuance of short-term notes Payment of accounts payable.

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Presentation on theme: "SST E 3-14. ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bonds Issuance of short-term notes Payment of accounts payable."— Presentation transcript:

1 SST E 3-14

2 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bonds Issuance of short-term notes Payment of accounts payable Purchase of inventory on account Purchase of inventory for cash Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

3 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notes Payment of accounts payable Purchase of inventory on account Purchase of inventory for cash Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

4 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payable Purchase of inventory on account Purchase of inventory for cash Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

5 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on account Purchase of inventory for cash Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

6 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cash Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

7 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

8 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bonds Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

9 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bondsDDD Sale of common stock Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

10 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bondsDDD Sale of common stockIID Write-off of obsolete inventory Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

11 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bondsDDD Sale of common stockIID Write-off of obsolete inventoryDNI Purchase of short-term investment for cash Decision to refinance on a long-term basis some currently maturing debt

12 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bondsDDD Sale of common stockIID Write-off of obsolete inventoryDNI Purchase of short-term investment for cash NNN Decision to refinance on a long-term basis some currently maturing debt

13 ACTIONCURRENT RATIO ACID- TEST RATIO DEBT TO EQUITY RATIO Issuance of long-term bondsIII Issuance of short-term notesIII Payment of accounts payableDDD Purchase of inventory on accountIDI Purchase of inventory for cashNDN Purchase of equipment with a 4-year note NNI Retirement of bondsDDD Sale of common stockIID Write-off of obsolete inventoryDNI Purchase of short-term investment for cash NNN Decision to refinance on a long-term basis some currently maturing debt IIN

14 MARRIOTT CASE

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17 L/SE = L = SE By substitution, SE = $9,107 SE = $3,478

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21 Current ratio = CA/CL CA = Current ratio x CL CA = x $1,802 CA = $2,130

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23 Acid test ratio = Quick assets/CL = Cash + Acc. & Notes Rec./CL = ($817 + Acc. & Notes Rec.)/$1,802 = ($817 + Acc. & Notes Rec.)/ = x 1,802 = $1,428 Acc. & Notes Rec. = $1,428 – 817 = $611

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28 SEARS (A) CASE


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