The comparative financial statements of New World Piano Company for 20X3,
20X2, and 20X1 included the following selected data:
|
20X3 |
20X2 |
20X1 |
|
|
(In millions) |
|||
|
Balance sheet: |
|||
|
Current assets: |
|||
|
Cash |
$ 6 7 |
$ 66 |
$ 62 |
|
Short term investments Receivables, net of allowance for doubtful accounts of $7, $6 and $4, respectively |
93 |
101 |
69 |
|
Inventories |
206 |
154 |
197 |
|
Prepaid expenses |
408 |
383 |
341 |
|
Total current assets |
32 |
31 |
25 |
|
Total current liabilities |
806 |
735 |
694 |
|
Income statement: |
440 |
416 |
388 |
Required
1. Compute these ratios for 20X3 and 20X2:
a. Current ratio b. Acid test ratio c. Days’ sales in receivables
2. Write a memo explaining to top management which ratio values showed improvement from 20X2 to 20X3 and which ratio values deteriorated. State whether the overall trend is favorable or unfavorable for the company and give the reason for your evaluation.