Current assets and current liabilities for Brimstone Company follow: a. Determine the working capital and current ratio
Question:
Current assets and current liabilities for Brimstone Company follow:
a. Determine the working capital and current ratio for 20Y4 and 20Y3.
b. Does the change in the current ratio from 20Y3 to 20Y4 indicate a favorable or an unfavorable change?
20Υ3 $1,210,000 20Υ4 Current assets $1,586,250 Current liabilities 705,000 550,000
Step by Step Answer:
a b The increase from 220 to 225 indicates a ...View the full answer
Related Video
The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.
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