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Homework answers / question archive / Bargain Deal, Inc
Bargain Deal, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended January 28, 2017, are shown below. Bargain Deal, Inc. Balance Sheet At January 28, 2017 ($ in millions) Assets Current assets: Cash and cash equivalents Short-term investments Accounts receivable (net) Inventory Other current assets Total current assets Long-term assets Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Other current liabilities Total current liabilities Long-term liabilities Shareholders' equity Total liabilities and shareholders' equity $ 2,116 1,319 1,232 5,065 420 10,152 3,703 $13,855 $ 5,150 3,875 9,025 2,244 2,586 $13,855 Bargain Deal, Inc. Income Statement For the Year Ended January 28, 2017 ($ in millions) Revenues $39,598 Costs and expenses 38,167 Operating income 1,431 Other income (expense) (79) Income before income taxes 1,352 Income tax expense 713 Net income 639 *Includes $206 of interest expense.
Required: 1-a. Calculate the current ratio for Bargain Deal for its fiscal year ended January 28, 2017 1-b. Calculate the acid-test ratio for Bargain Deal for its fiscal year ended January 28, 2017 1-c. Calculate the debt to equity ratio for Bargain Deal for its fiscal year ended January 28, 2017 1-d. Calculate the times interest earned ratio for Bargain Deal for its fiscal year ended January 28, 2017 (For all requirements, round your answers to 2 decimal places.) 1-a. Current ratio 1-b. Acid-test ratio 1-c. Debt to equity ratio 1-d. Times interest earned ratio times
1-a ) 1.125
A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts. A current ratio below 1 means that the company doesn't have enough liquid assets to cover its short-term liabilities.
1-b ) 0.564
A company that has a quick ratio of less than 1 may not be able to fully pay off its current liabilities in the short term, while a company having a quick ratio higher than 1 can instantly get rid of its current liabilities.
1-c ) 4.36
A good debt to equity ratio is around 1 to 1.5. However, the ideal debt to equity ratio will vary depending on the industry because some industries use more debt financing than others.
1-d ) 7.56
A higher times interest earned ratio is favorable because it means that the company presents less of a risk to investors and creditors in terms of solvency. organization that has a times interest earned ratio greater than 2.5 is considered an acceptable risk.
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