Current 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 current 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 improved.

The increase in ratio indicates that Smith & Son's ability to pay its current liabilities declined.

The decrease in ratio indicates that Smith & Son's ability to pay its current liabilities declined.

The increase in ratio indicates that Smith & Son's ability to pay its current liabilities improved.