Excel Financial Calculations for Improved Liquidity

How can Excel be used to evaluate liquidity?

How do you calculate working capital, current ratio, and acid-test ratio using Excel functions and formulas?

Was there an improvement or deterioration in liquidity for Drew in 2024?

Answer:

The problem involves calculating working capital, current ratio, and acid-test ratio for 2023 and 2024 using Excel functions and formulas. These values are used to determine whether Drew's liquidity improved or deteriorated in 2024.

Explanation:

To solve this problem, you'll need to employ some basic financial formulae. Working capital is calculated as current assets minus current liabilities. For example, for 2024, in cell B2 (assuming cell A1 is 'Current assets 2024'), you would enter: =A1-C1 (where A1 represents the cell for 'current assets 2024' and C1 represents the cell for 'current liabilities 2024').

Current ratio is calculated as current assets divided by current liabilities. For 2024, in cell E2, you would enter: =A1/C1. The acid-test ratio (or quick ratio) is more specific; it's calculated as (Cash + Accounts Receivable) divided by Current Liabilities. For 2024, in cell H2, you'd enter =B1/C1 (where B1 represents the cell with the sum of cash and accounts receivable for 2024).

To determine whether Drew's liquidity improved or deteriorated in 2024, compare the values for working capital, current ratio, and acid-test ratio between 2023 and 2024. You can use the IF function in Excel for this. For instance, in cell K2 (assuming this is where you are analyzing Drew's working capital in 2024), you could enter: =IF(D2>D1, 'Improvement', 'Deterioration').