In this exercise you will discuss the impact of cash payment against the accou

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