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 100000
Cost of goods sold 47500
Operating expenses 750
Selling expenses 9500
Administrative expenses12000
Net income 30250
Year-2009
Sales 79900
Cost of goods sold 39950
Operating expenses 500
Selling expenses 9000
Administrative expenses 12000
Net income 18450