Question

ABC has the following: cash, $102 million; receivables, $94 million; inventory, $182 million; other current assets, $18 million, Plant Property and Equipment $220 million, accounts payable, $98 million long-term debt, $23 million. Based on these amounts, what is the current ratio (round to 2 decimal points)?

Answer 1

Current ratio = 4.04

Step-by-step explanation:

Current ratio measures the ability of a business to settle its short term obligations using its liquid financial resources (current assets)

A current ratio in excess of 2 is considered as adequate (except for some special occasions) and vice versa.

Current ratio is computed as follows:

Current ratio = current assets/current liabilities

Applying this we have

$

Cash 102

Receivable 94

Inventory 182

Other current assets 18

Total current assets 396

Total current liability 98

Current ratio= Total current assets / Total current liability

Current ratio = 396/98= 4.04:1

Current ratio = 4.04