tech supplies company, incorporated\nbalance sheet\njanuary 28, 2023\n($ in millions)\nassets\ncurrent…

tech supplies company, incorporated\nbalance sheet\njanuary 28, 2023\n($ in millions)\nassets\ncurrent assets:\ncash and cash equivalents $1,996\naccounts receivable (net) 1,172\ninventory 5,053\nother current assets 396\ntotal current assets 8,617\nlong - term assets 3,643\ntotal assets $12,260\nliabilities and shareholders’ equity\ncurrent liabilities:\naccounts payable $4,550\nother current liabilities 2,675\ntotal current liabilities 7,225\nlong - term liabilities 2,220\nshareholders’ equity 2,815\ntotal liabilities and shareholders’ equity $12,260\ntech supplies company, incorporated\nincome statement\nfor the year ended january 28, 2023\n($ in millions)\nrevenues $39,538\ncosts and expenses 38,155\noperating income 1,383\nother income (expense)* (67)\nincome before income taxes 1,316\nincome tax expense 533\nnet income $783\n*includes $98 of interest expense.\nliquidity and solvency ratios for the industry are as follows.\nindustry average\ncurrent ratio 1.41\nacid - test ratio 0.62\ndebt to equity 0.72\ntimes interest earned 5.91 times\nrequired:\n1 - a. calculate the current ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - b. calculate the acid - test ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - c. calculate the debt to equity ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - d. calculate the times interest earned ratio for tech supplies for its fiscal year ended january 28, 2023.\n2. assess whether each ratio indicates higher or lower risk of tech supplies’s liquidity and solvency relative to its industry.\ncomplete this question by entering your answers in the tabs below.\nrequired 1\nrequired 2

tech supplies company, incorporated\nbalance sheet\njanuary 28, 2023\n($ in millions)\nassets\ncurrent assets:\ncash and cash equivalents $1,996\naccounts receivable (net) 1,172\ninventory 5,053\nother current assets 396\ntotal current assets 8,617\nlong - term assets 3,643\ntotal assets $12,260\nliabilities and shareholders’ equity\ncurrent liabilities:\naccounts payable $4,550\nother current liabilities 2,675\ntotal current liabilities 7,225\nlong - term liabilities 2,220\nshareholders’ equity 2,815\ntotal liabilities and shareholders’ equity $12,260\ntech supplies company, incorporated\nincome statement\nfor the year ended january 28, 2023\n($ in millions)\nrevenues $39,538\ncosts and expenses 38,155\noperating income 1,383\nother income (expense)* (67)\nincome before income taxes 1,316\nincome tax expense 533\nnet income $783\n*includes $98 of interest expense.\nliquidity and solvency ratios for the industry are as follows.\nindustry average\ncurrent ratio 1.41\nacid - test ratio 0.62\ndebt to equity 0.72\ntimes interest earned 5.91 times\nrequired:\n1 - a. calculate the current ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - b. calculate the acid - test ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - c. calculate the debt to equity ratio for tech supplies for its fiscal year ended january 28, 2023.\n1 - d. calculate the times interest earned ratio for tech supplies for its fiscal year ended january 28, 2023.\n2. assess whether each ratio indicates higher or lower risk of tech supplies’s liquidity and solvency relative to its industry.\ncomplete this question by entering your answers in the tabs below.\nrequired 1\nrequired 2

Answer

Explanation:

Step1: Recall current - ratio formula

Current ratio = $\frac{Total\ current\ assets}{Total\ current\ liabilities}$ From the balance - sheet, total current assets = $8,617$ million and total current liabilities = $7,225$ million. Current ratio = $\frac{8617}{7225}\approx1.19$

Step2: Recall acid - test ratio formula

Acid - test ratio = $\frac{Cash\ and\ cash\ equivalents + Accounts\ receivable\ (net)+ Other\ current\ assets}{Total\ current\ liabilities}$ Cash and cash equivalents = $1,996$ million, accounts receivable (net) = $5,053$ million, other current assets = $1,568$ million (since $8617-(1996 + 5053+396)=1568$), and total current liabilities = $7,225$ million. Acid - test ratio = $\frac{1996 + 5053+1568}{7225}=\frac{8617 - 396}{7225}=\frac{8221}{7225}\approx1.14$

Step3: Recall debt - to - equity ratio formula

Debt - to - equity ratio = $\frac{Total\ liabilities}{Shareholders'\ equity}$ Total liabilities = Total current liabilities+Long - term liabilities = $7225 + 2815=10040$ million, and shareholders' equity = $2220$ million. Debt - to - equity ratio = $\frac{10040}{2220}\approx4.52$

Step4: Recall times interest earned ratio formula

Times interest earned ratio = $\frac{Income\ before\ income\ taxes+Interest\ expense}{Interest\ expense}$ Income before income taxes = $1316$ million and interest expense = $98$ million. Times interest earned ratio = $\frac{1316 + 98}{98}=\frac{1414}{98}\approx14.43$

Answer:

1-a. The current ratio is approximately $1.19$. 1-b. The acid - test ratio is approximately $1.14$. 1-c. The debt - to - equity ratio is approximately $4.52$. 1-d. The times interest earned ratio is approximately $14.43$. 2.

  • Current ratio: The industry average is $1.41$ and Tech Supplies' current ratio is $1.19$. A lower current ratio indicates a higher risk of liquidity issues as there are fewer current assets relative to current liabilities compared to the industry.
  • Acid - test ratio: The industry average is $0.62$ and Tech Supplies' acid - test ratio is $1.14$. A higher acid - test ratio indicates a lower risk of liquidity issues in the short - term as it excludes inventory and focuses on more liquid assets.
  • Debt - to - equity ratio: The industry average is $0.72$ and Tech Supplies' debt - to - equity ratio is $4.52$. A higher debt - to - equity ratio indicates a higher risk of solvency issues as the company has a much higher proportion of debt compared to equity.
  • Times interest earned ratio: The industry average is $5.91$ times and Tech Supplies' times interest earned ratio is $14.43$ times. A higher times interest earned ratio indicates a lower risk of solvency issues related to interest payments as the company has more earnings available to cover interest expenses.