In this exercise, you will discuss the impact of cash payment against the accounts payable on the current ratio of a company. In addition, you will perform a vertical analysis against the entries listed on the financial statement.
Task 1: A company has a current ratio of two. The CFO decides to pay off a portion of its accounts payable with cash. Explain whether the current ratio will increase, decrease, or remain unchanged. Support your answer with appropriate rationale.
Task 2: Based on the attached financial information, perform a vertical analysis, list the steps performed, and provide an explanation for your analysis.
Year-2010
Year-2009
Amount in Dollars
Sales
1,00,000
79,900
Cost of goods sold
47,500
39,950
Operating expenses
750
500
Selling expenses
9,500
9,000
Administrative-expenses
12,000
12,000
Net income
30,250
8,450