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Calculate and analyze ratios (LO8-6) Selected financial data regarding current assets and current liabilities for Ferris Air and Oceanic Airlines are provided as follows: ($ in millions) Ferris Air Oceanic Airlines Current assets: Cash and cash equivalents $ 1,113 $ 2,791 Current investments 1,857 958 Net receivables 578 2,156 Inventory 469 1,023 Other current assets 210 1,344 Total current assets $ 4,227 $ 8,272 Current liabilities: Current debt $ 271 $ 1,627 Accounts payable 2,209 5,686 Other current liabilities 2,170 5,957 Total current liabilities $ 4,650 $ 13,270 Required: 1-a
Calculate and analyze ratios (LO8-6)
Selected financial data regarding current assets and current liabilities for Ferris Air and Oceanic Airlines are provided as follows:
| ($ in millions) | Ferris Air | Oceanic Airlines | ||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 1,113 | $ | 2,791 | ||||||||
| Current investments | 1,857 | 958 | ||||||||||
| Net receivables | 578 | 2,156 | ||||||||||
| Inventory | 469 | 1,023 | ||||||||||
| Other current assets | 210 | 1,344 | ||||||||||
| Total current assets | $ | 4,227 | $ | 8,272 | ||||||||
| Current liabilities: | ||||||||||||
| Current debt | $ | 271 | $ | 1,627 | ||||||||
| Accounts payable | 2,209 | 5,686 | ||||||||||
| Other current liabilities | 2,170 | 5,957 | ||||||||||
| Total current liabilities | $ | 4,650 | $ | 13,270 | ||||||||
Required:
1-a. Calculate the current ratio for Ferris Air and Oceanic Airlines. (Enter your answers in millions. For example, $5,500,000 should be entered as 5.5.)
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-b. Which Airlines has the better current ratio?
multiple choice 1
-
Ferris Air
-
Oceanic Airlines
2-a. Calculate the acid-test (quick) ratio for Ferris Air and Oceanic Airlines. (Enter your answers in millions. For example, $5,500,000 should be entered as 5.5.)
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2-b. Which Airlines has the better acid-test ratio?
multiple choice 2
-
Ferris Air
-
Oceanic Airlines
Expert Solution
1.a. Current ratio = Current assets / Current liabilities
Ferris Air = 0.909 Oceanic Airlines = 0.623
Calculation:
| Airlines |
Total current assets (in mllions) |
Total current liabilities (in millions) |
Current ratio |
| Ferris Air | $4,227 | $4,650 | $4,227 / $4,650 = 0.909 |
| Oceanic Airlines | $8,272 | $13,270 | $8,272 / $13,270 = 0.623 |
1.b. Ferris Air
Ferris Air has a better current ratio. It's current ratio is higher than the Oceanic Airlines. A higher current ratio indicates a higher capability to pay the company's obligations.
2.a Acid-Test(quick) ratio = (Current assets - inventory) / Current liabilities
Ferris Air = 0.808 Oceanic Airlines = 0.546
Calculation:(all amounts are in millions)
| Airline | Total current assets | Inventory | Total current liabilities |
Acid - Test ratio (current assets - inventory) / Current liabilities |
| Ferris Air | $4,227 | $469 | $4,650 | ($4,227 - $469) / $4,650 = 0.808 |
| Oceanic Airlines | $8,272 | $1,023 | $13,270 | ($8,272 - $1,023) / $13,270 = 0.546 |
2.b. Ferris Air
Ferris Air has a higher acid - test ratio compared to Oceanic Airlines. So, Ferric Air's acid - test ratio is better. It indicates that Ferric Air is more financially stable than Oceanic Airlines
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