Mastery Problem: Financial Statement Analysis

Liquidity and Solvency Measures

Your friend, another accountant, has bet you that with your knowledge of accounting and just the computations for common analytical measures, you can figure out many aspects of a company's financial statements. You take the bet!

Match each computation to one of the liquidity and solvency measures in the table. (Hint: Begin by looking for simple computations and identifying the amounts in those computations. Look for other measures that use those amounts.)

Liquidity and Solvency Measures Computations

Working capital

Current ratio

Quick ratio

Accounts receivable turnover

Numberofdays'salesinreceivables

Inventory turnover

Number of days' sales in inventory

Ratiooffixedassetstolong-termliabilities

Ratioofliabilitiestostockholders'equity

Times interest earned