Your investment club has accumulated money and a friend suggests that you consider buying shares in GardenWare Products, which manufactures gardening tools and products. Because you may need to sell the shares within the next few years as part of the investment club’s activities, you start your analysis of the company data by calculating (1) working capital, (2) the current ratio, and (3) the quick ratio.

GardenWare’s statement of financial position is as follows:

Current assets

Cash ...........................................................      $270,600

Inventory ...................................................        299,000

Prepaid expenses .....................................          29,400

Non-current assets

Land ............................................................         70,000

Building and equipment ..........................        203,000

Other .........................................................           21,000

Total ...........................................................      $893,000

Current liabilities ......................................      $231,000

Long-term debt .........................................       266,000

Share capital ............................................         152,000

Retained earnings ....................................        244,000

Total ..........................................................       $893,000

Required

a. What amount of working capital is currently maintained? Comment on the adequacy of this amount.

b. Your preference is to have a quick ratio of at least 0.80 and a current ratio of at least 2.00. How do the existing ratios compare with your criteria? Based on these two ratios, how would you evaluate the company’s current asset position?

c. The company currently sells only on a cash basis and had sales of $1.2 million this past year. How would you expect a change from cash to credit sales to affect the current and quick ratios?

d. GardenWare’s statement of financial position is presented just before the company begins making shipments to retailers for its spring and summer season. How would your evaluation change if these balances existed in late September, following completion of its primary business for the gardening season?

e. How would GardenWare’s situation as either a public company or private company affect your decision to invest?