The effects of transactions on financial ratios
The balance sheet of Walgreens, a leading chain drugstore, as of August 31, 2009, appears as follows (dollars in millions):
|
Assets |
Liabilities and Shareholders” Equity |
||
|
Cash |
$ 2,587 |
Accounts payable |
$4,308 |
|
Accounts receivable |
2,496 |
Other short-term payables |
2,461 |
|
Inventors |
6,789 |
Long-term payable |
3,997 |
|
Other noncurrent assets |
13,270 |
Shareholders’ equity |
14376 |
|
Total liabilities and |
|||
|
Total assets |
$25,142 |
shareholders” equity |
$25,142 |
REQUIRED:
Assume that the following eight transactions occurred the next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus expenses), the current ratio (current assets divided by current liabilities), working capital (current assets minus current liabilities), and the debt/equity ratio (total liabilities divided by total shareholders” equity) of Walgreens. Use the following key: increase (+), decrease (–), no effect (NE). Treat each transaction independently.
|
Transaction |
Net |
Current |
Working |
Debt/Equity |
|
1. Issued ownership shares for $100 cash. |
||||
|
2. Purchased equipment costing $95 for cash. |
||||
|
3. Paid off a $200 long-term liability |
|
Transaction |
Net Cash |
Current Ratio |
Working Capital |
Debt/Equity Ratio |
|
4. Sold inventory costing $5110 for $685 cash. |
||||
|
5. Declared a $152 dividend but have not paid. |
||||
|
6. Received $75 from customers on account. |
||||
|
7. Incurred and paid $30 in interest on short-term payables. |