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please answer what happens to the ratios when the above scenarios happen (this question has already been answered on chegg but the answer wasn't very
please answer what happens to the ratios when the above scenarios happen
(this question has already been answered on chegg but the answer wasn't very helpful)
Problem #1 (48 marks) Consider the following simplified Statement of Comprehensive Income and Statement of Financial Position from Smith Corporation's 2018 Annual Report to Shareholders. Smith Corporation Statement of Comprehensive Income ($ millions) Net sales $8,324 Cost of goods sold $4,988 Depreciation $1,190 Earnings Before interest and $2,146 taxes Interest paid $320 Taxable income $1,826 Taxes Net income $1,205 $621 Smith Corporation Statement of Financial Position 2017 & 2018 ($ millions) 2017 2018 2017 Cash $5,415 $3,341 Accounts payable 1,110 Accounts rec. $2,460 $979 Notes payable 2,500 Inventory 2,405 2,885 Total 3,610 Total 10,280 7,205 Long-term debt 4,800 Net fixed assets 12,300 16,720 Common stock 5,100 Retained earnings 9,070 Total assets 22,580 23,925 Total liabilities and 22,580 Owner's equity 2018 1,650 1,900 3,550 4,600 5,900 9,875 23,925 f) If Smith Corporation pays its suppliers timelier in 2019, what will happen to its current ratio? Briefly explain! (2 marks) g) If, in 2019, Smith Corporation implements a new inventory management system, which reduces the time goods stay in inventory, what will happen to its quick ratio? Briefly explain! (2 marks) h) If Smith Corporation takes on more debt, what will happen to its times interest earned ratio? Explain (2 marks)Step by Step Solution
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