Question

Liquidity Analyses for Kellogg's and General Mills The following information was summ ed from the balance sheets induded in the form 10 K for the 2015 Mils, Inc. and Subsidiaries at May 31, 2015 year of Kello Campany and Subsianes at January 2, 2016, and General Kellogg's $251 1.386.7 1,540.0 in millions) Cash and cash equivalents Accounts receivable Inventories Deferred income taxes Prepad expenses and other current assets Total current assets Total current atties Described bles" by General Mills **Described as other current styles $3,236 $5,30 $4,000.1 1. Using the information provided, comote the following for each company at the end of 2015 Round your answers to two decimal places Kellogg's General Hills Current ratio Quick ratio 2. Kellogg's reported cash provided by operating activities of $1,691 million during 2015. General Mills reported t he provided by operating activities of $2,542.8 milion. Total current liabilities reported by Kellogg's at Januwy, 2015, and General Milis at May 25, 2014, were $4.364 million and $5.423.5 million, respectively, Compute the cartow from operations te current i s ratio for each company for 2015. Round your answers to two decimales Oh My Work 2 more Check My Workester

Answer 1

Solution:

1. Current ratio:

Current Ratio = Current assets / Current Liabilities

For Kellogg’s

Current ratio = 3236 / 5739

                        = 0.56

For General Mills,

Current ratio = 3785.7 / 4890.1

                       

                        = 0.77

Quick Ratio:

Quick ratio = (Current asset – inventory) / Current liabilities

For Kellogg’s

Quick ratio = (3236 – 1250) / 5739

                        = 0.35

For General Mills,

Quick ratio = (3785.7 – 1540.9) / 4890.1

                       

                        = 0.46

                                                                Kellogg’s                                 General mills

Current ratio	0.56	0.77
Quick ratio	0.35	0.46

2. Cash flow from operations to current liabilities ratio.

For Kellogg’s

Cash flow from operating activities = $1691 million

Current liabilities on Jan 3, 2015 = $4364 million

Current liabilities on May 31,2015 = $5739 million

Cash flow from operations to current liabilities ratio = Cash flow from operations activity /

                                                                                                               Average current liabilities        

                                                                                                       = 1691 / ((4364+5739)/2)

                                                                                                       = 1691 / 5051.5

                                                                                                       = 0.33

For General mills,

Cash flow from operating activities = $2542.8 million

Current liabilities on May 31,2015= $4890.1 million

Current liabilities on May 25,2014 = $5423.5 million

Cash flow from operations to current liabilities ratio = 2542.8 / ((4890.1+5423.5)/2)

                                                                                                       = 2542.8 / 5156.8

                                                                                                       = 0.49

Cash flow from operations to current liabilities ratio:

Kellogg’s	0.33
General Mills	0.49

3. General Mills is appeared to be more liquid

4. The other ratios used to measure the liquidity of company are days sales outstanding and Solvency ratio.

Days sales outstanding = Accounts receivables / annual sales *365 days

Solvency ratio = (Net income after tax + Non-cash expenses) / Total Liabilities