Required:

1. Compute these ratios for 2014 and 2013:

A) Current ratio

B) Acid-test ratio

C) Days sales in receivable

2. Write a memo explaining to Emily, owner of Main Terrace, which ratio values showed improvement from 2013 to 2014, and which ratio value showed deterioration. Discuss whether these factors convey a favorable or an unfavorable impression about the company.

The comparative financial statements of Main Terrace for 2014, 2013, and 2012 included the selected data shown below.

(In Millions)

2014 2013 2012

Balance Sheet

Current Assets:

Cash $580 $560 $520

Short-term investments $280 $340 $252

Receivable, net $560 $520 $488

Inventories $720 $680 $600

Prepaid expenses $100 $40 $80

Total current assets $2240 $2140 $1940

Total current liabilities $1160 $1200 $1320

Income statement

Sales revenue $11,680 $10,220 $8400