Quick Ratio

Smith and Sons, Inc.
Income Statement
(in millions)

2016 2015
Net sales 10,200 9,700
Cost of goods sold (5,500) (5,200)
Gross profit 4,700 4,500
Selling and administrative expenses (2,800) (2,700)
Income from operations 1,900 1,800
Interest expense (300) (250)
Income before income taxes 1,600 1,550
Income tax expense (420) (400)
Net income 1,180 1,150
Smith and Sons, Inc.

Balance Sheet

(in millions)

2016 2015
Assets
Current assets
Cash and cash equivalents 350 550
Accounts receivable 900 800
Inventory 650 800
Other current assets 400 250
Total current assets 2,300 2,400
Property, plant & equipment, net 2,450 2,350
Other assets 5,700 5,900
Total Assets 10,450 10,650
Liabilities and Stockholders' Equity
Current liabilities 3,150 3,050
Long-term liabilities 5,000 5,400
Total liabilities 8,150 8,450
Stockholders' equity-common 2,300 2,200
Total Liabilities and Stockholders' Equity 10,450 10,650
Calculate the quick ratio for Smith & Sons, Inc., for 2015 and 2016.
Round answers to two decimal places.

2015 Answer
2016 Answer

2015 - Quick ratio = 0.52

2016 - Quick ratio = 0.52

Explanation:

Quick ratio Formula

(Current assets - stock) ÷ current liabilities - this will be used in the calculations.

Current assets:

Cash and other assets that are expected to be converted to cash within a year.

Current liabilities: Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle.

Workings:

2015 - Quick ratio:

Quick ratio = (Current assets - stock) ÷ current liabilities

Quick ratio = ($2,400 - $800) ÷ $3,050

Quick ratio = 0.52 (answer)

2016 - Quick ratio:

Quick ratio = (Current assets - stock) ÷ current liabilities

Quick ratio = ($2,300 - $650) ÷ $3,150

Quick ratio = 0.52 (answer)

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