Current Ratio

Smith and Sons, Inc.

Income Statement

$($in millions$)$

Current Year Previous Year

Net sales $$10,150$ $$9,650$

Cost of goods sold $(5,500)(5,200)$

Gross profit $4,6504,450$

Selling and administrative expenses $(2,800)(2,700)$

Income from operations $1,8501,750$

Interest expense $(300)(250)$

Income before income taxes $1,5501,500$

Income tax expense $(420)(400)$

Net income $1,1301,100$

Smith and Sons, Inc.

Balance Sheet

$($in millions$)$

Current Year Previous Year

Assets

Current assets

Cash and cash equivalents $300500$

Accounts receivable $900800$

Inventory $600750$

Other current assets $400250$

Total current assets $2,2002,300$

Property, plant & equipment, net $2,5002,400$

Other assets $5,7005,900$

Total Assets $10,40010,600$

Liabilities and Stockholders' Equity

Current liabilities $3,1003,000$

Long$-$term liabilities $5,0005,400$

Total liabilities $8,1008,400$

Stockholders' equity$-$common $2,3002,200$

Total Liabilities and Stockholders' Equity $10,40010,600$

Calculate the current ratio for Smith & Sons, Inc., for each year.

Round answers to two decimal places.

Previous Year Answer

Current Year Answer

Did the company$$s ability to pay its current liabilities improve over the two years?

The decrease in ratio indicates that Smith & Son's ability to pay its current liabilities improved.

The increase in ratio indicates that Smith & Son's ability to pay its current liabilities declined.

The decrease in ratio indicates that Smith & Son's ability to pay its current liabilities declined.

The increase in ratio indicates that Smith & Son's ability to pay its current liabilities improved.