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Quick Ratio
| Smith and Sons, Inc. Income Statement |
|---|
| (in millions) | Current Year | Previous Year |
| Net sales | 10,300 | 9,800 |
| Cost of goods sold | (5,500) | (5,200) |
| Gross profit | 4,800 | 4,600 |
| Selling and administrative expenses | (2,800) | (2,700) |
| Income from operations | 2,000 | 1,900 |
| Interest expense | (300) | (250) |
| Income before income taxes | 1,700 | 1,650 |
| Income tax expense | (420) | (400) |
| Net income | 1,280 | 1,250 |
| Smith and Sons, Inc. Balance Sheet |
|---|
| (in millions) | Current Year | Previous Year |
| Assets |
| Current assets |
| Cash and cash equivalents | 450 | 650 |
| Accounts receivable | 900 | 800 |
| Inventory | 750 | 900 |
| Other current assets | 400 | 250 |
| Total current assets | 2,500 | 2,600 |
| Property, plant & equipment, net | 2,350 | 2,250 |
| Other assets | 5,700 | 5,900 |
| Total Assets | 10,550 | 10,750 |
| Liabilities and Stockholders' Equity |
| Current liabilities | 3,250 | 3,150 |
| Long-term liabilities | 5,000 | 5,400 |
| Total liabilities | 8,250 | 8,550 |
| Stockholders' equity-common | 2,300 | 2,200 |
| Total Liabilities and Stockholders' Equity | 10,550 | 10,750 |
Calculate the quick ratio for Smith & Sons, Inc., for each year. Round answers to two decimal places.
| Previous Year | Answer |
| Current Year | Answer |
Did the companys ability to pay its current liabilities improve over the two years?
The decrease in ratio indicates that Smith & Son's ability to pay its current liabilities using its quick assets improved.
The increase in ratio indicates that Smith & Son's ability to pay its current liabilities using its quick assets declined.
The decrease in ratio indicates that Smith & Son's ability to pay its current liabilities using its quick assets declined.
The increase in ratio indicates that Smith & Son's ability to pay its current liabilities using its quick assets improved.
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