Sports International had total debt of $500,000 and $750,000 as at December 31, 2020, and December 31,
Question:
Sports International had total debt of $500,000 and $750,000 as at December 31, 2020, and December 31, 2019, respectively, of which $100,000 and $150,000 was current. In addition, the company had total assets of $900,000 and $700,000 as at December 31, 2020, and December 31, 2019, respectively, of which $120,000 and $140,000 was current. Evaluate the company's debt-paying ability in 2020 and 2019. Round debt to total assets ratio to nearest full percentage point and the current ratio to two decimal points.
Step by Step Answer:
Debtpaying ability may be evaluated by calculating t...View the full answer
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
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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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