The management of Hencky Corporation is developing a loan proposal to present to a local investor. The
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The management of Hencky Corporation is developing a loan proposal to present to a local investor. The company is looking for a $1-million loan to finance the research and development costs of producing a revolutionary new wearable computer. Most of the loan proceeds will be spent on intangible costs, such as research salaries, and this will therefore be a very risky investment. Because of the risk associated with the project, the investor is requiring some assurance that the company is currently solvent and operating as a going concern. As the accountant for Hencky Corporation, you have used the most recent financial statements to calculate the following ratios:
Required Provide an explanation of how each of the above ratios should be interpreted and what they specifically tell you about Hencky’s solvency and ability to continue as a going concern.
Transcribed Image Text:
Current ratio
Quick ratio
Accounts receivable turnover
Inventory turnover
Debt to equity ratio
2024
1.8:1
1.10:1
10 times
6 times
25.2%
2023
1.7:1
1.08:1
11 times
5 times.
35.8%
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For a company to be solvent and be able to continue as a going concern it must have the ability to generate sufficient cash to meet both its maturing ...View the full answer
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