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Measures of Solvency and Credit Risk
Shown Below Are Selected

question 52

Essay

Measures of solvency and credit risk
Shown below are selected items appearing in a recent balance sheet of Grant Products. (Dollar amounts are in thousands.)
(a) Compute the following:
(1) Total quick assets $____________
(2) Total current assets $____________
(3) Total current liabilities $____________
(4) Quick ratio ______ to 1
(5) Current ratio ______ to 1
(b) Research indicates an industry average quick ratio is 1.3 to 1, and a current ratio of 2.3 to 1. Based upon this information, does Grant Products appear more or less solvent than the average company in its industry? Explain briefly.
 Cash and cash equivalents $620 Investments in marketable securities $300 Receivables $1,400 Inventories $1,100 Prepaid expense and other current assets $450 Plant and equipment $3,300 Accounts payable $1,600 Bank loans payable within one year $300 Income taxes payable $300 Retained earnings $1,700\begin{array} { | l | r | } \hline \text { Cash and cash equivalents } & \$ 620 \\\hline \text { Investments in marketable securities } & \$ 300 \\\hline \text { Receivables } & \$ 1,400 \\\hline \text { Inventories } & \$ 1,100 \\\hline \text { Prepaid expense and other current assets } & \$ 450 \\\hline \text { Plant and equipment } & \$ 3,300 \\\hline \text { Accounts payable } & \$ 1,600 \\\hline \text { Bank loans payable within one year } & \$ 300 \\\hline \text { Income taxes payable } & \$ 300 \\\hline \text { Retained earnings } & \$ 1,700 \\\hline\end{array}


Definitions:

Net Working Capital

The distinction between the immediate resources and obligations of a company, highlighting its financial condition for the short run.

Short-term Obligations

Debts or liabilities that are due to be paid within a short period of time, typically within a year.

Operating Cash Flow

The cash generated from a company's normal business operations, indicating whether a company is able to maintain or grow its operations.

CCA Half-year Rule

A regulation in Canadian tax law allowing only half of the normal capital cost allowance deduction in the year of acquisition of a depreciable asset.

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