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
- Amount in Dollars
- Sales 1,00,000
- Cost of goods sold 47,500
- Operating expenses 750
- Selling expenses 9,500
- Administrative expenses12,000
- Net income 30,250
- Year-2009
- Sales 79,900
- Cost of goods sold 39,950
- Operating expenses 500
- Selling expenses 9,000
- Administrative expenses 12,000
- Net income 18,450