All right, here we have my income statement, my balance sheet, and a table of references of some different ratios. We're going to calculate some of the ratios, and I'm going to show you where it is you get the information. And then we're going to fill in the calculations. Then I'm going to send you out and have you do this for maybe your company or maybe a company in the same industry. So let's do this quick ratio. Quick ratio, as mentioned, is a ratio of your current assets minus your inventories relative to your current liabilities. And then your current ratio is all of your current assets relative to your current liabilities. So, here's what we're going to do. Let's calculate this quick ratio first. For the quick ratio, like I said, I need current assets. I need inventories, and I need current liabilities. All of this information here is all found on my balance sheet. So my current assets is right here, total current assets, you see that, 29,021,000. Now when we're doing these calculations, since all of these calculations have lots of zeroes, we're just going to eliminate three zeroes for everything because we're just looking for a ratio. So here we have our total current assets, 29,021. And then my inventories, which is right here, of 1,301. And so I'm going to take these, and then I'm going to put these in the numerator. So up here, I've got 29021 and subtract 1301. And in my denominator, I'm going to put my total current liabilities right there, 19483 19483. So I'm going to take my handy dandy little four function calculator, 29021 minus 1301 gives me 27720. Divide that by my 19483, and the number I get is 1.42, 1.42. Did you get this number, calculate it? I think you did. What does this mean? Now remember, this is what's called the quick ratio or the acid test ratio. This says that I have $1.42 of liquid assets to cover my current portion of my liabilities. Is this better or worse than other people? What we want to do is we just want to look at comparable organizations, companies that operate in the same space that we do, and identify their quick ratio. Do we want it to be 10 or 20? Probably not, it would identify that we have got maybe too many assets and not enough debt. Do we want it to be 0.9 or 0.8? Absolutely not, that means we don't have enough liquid assets to cover the current portion of our debt. 1.42, is this a good number? Yes, it's a very solid number for Dell at this period of time. But in order to check that, we'd want to look at what's going on in other companies. Just so happens that the same period of time the sector had a quick ratio of 1.57, and other companies in the industry had a quick ratio of 1.14. So Dell is competitive in this sector. They're a little bit lean with respect to some other companies, like Apple has a quick ratio of more than two. But they're doing better than the S&P overall, which had a quick ratio of 0.83 during the same time period. This is how you understand whether or not the ratio make sense for the company within the industry at the same period of time. Look at comparables and identify how your company stacks up. Let's look at the current ratio, so I'm going to erase this stuff right here What is the calculation for the current ratio? The current ratio says, what is the total current assets as a ratio of my total current liabilities? Notice that my current liabilities is still over here. My total current assets is right here. So the calculation for my current ratio would be 29021 over 19463. Okay, so take my handy dandy little four function calculator, 029021 divided by 19463, and I have 1.49, 1.49. So what does this mean? It means that I have almost $1.50 of all of my current assets to cover the current potion of my liabilities. Is this better or worse? At that same period of time, the industry had a current ratio of 1.5 so we're right on target there. The sector had a current ratio of 1.76. So we're a little bit lean. But the S&P has a current ratio of 0.97. So we're doing better than the S&P, a little bit worse than the sector. And we are right on target with the rest of the companies in our same industry. This is a way to identify where we stand with respect to these ratios. Let's move on, and let's look at a couple other ratios. So over here, all right, I'm going to put some calculations in here. So my quick ratio is at 1.42. Where from? We're getting this stuff from our balance sheet, okay. Our current ratio, 1.49, something of that neighborhood. We're also getting this information from our balance sheet. And the value of these things, right, is that as with every ratio we're identifying, can we cover, okay? Can we cover our debts? Do we need to go deeper, or can we just liquidate all of our current assets?
