of the first indicators that warned us that Toys R Us might be having liquidity problems. To give us further insight on this problem we then analyzed the acid test ratio. This ratio confirmed our assumption about the firm’s liquidity problems. Currently, Toys R Us only has $.21 of liquid assets to cover each $1 of current liabilities. Since, these ratios are extremely low Toys R Us is currently restructuring their liabilities. Within the past year they have reduced their short-term debt by over 50%, they have also reduced their total current liabilities by more than 17%. Although, they have made drastic changes with their current liabilities it does not seem to be helping their current situation. During the past year the liquidity index has increased by more than 33%, signifying a deterioration in the firm’s liquidity. We have determined that the increase in the liquidity index is connected to the firm’s drastic reduction in cash. Toys R Us reduced their cash available over the previous year by more than 50%. This reduction can be attributed to the decrease in current liabilities. Toys R Us needs to reevaluate their current borrowing policies, and their use cash and other current assets, or face extreme liquidity problems in the future.Capital Structure and Solvency RatiosJan-01Jan-00Jan-99Jan-98Jan-97IndustryTotal Debt to Equity1.341.271.180.80.91.69Total Debt Ratio0.570.560.540.440.48.58Current Liabilities to Total Liabilities0.510.610.580.650.66N/AEarnings to Fixed Charges4.116.713.7510.939.25N/ACash Flow to Fixed Charges-0.819.8611.88.57N/AN/AFinancial Leverage Index2.302.2221.7171.703N/AAltman Z Score2.572.3982.2162.7552.455N/ACapital structure and solvency ratios are also used to evaluate a firms overall risk. These ratios tell us about the companies long run visibility and ability to meet long-term obligations. From our analysis of the total debt to equity ratio we have determined that Toys R Us uses a ver...
