Question

Own Will beg... * Sign In G Gram eBook Show Me How Calculator Working capital and current ratio Current assets and current liabilities for Brimstone Company follow: 2014 2013 Current assets $1,597,500 $1,144,000 Current liabilities 710,000 520,000 a. Determine the working capital and current ratio for 2014 and 20Y3. Round Current ratio to 2 decimal places. 2014 20Y3 Working capital $ 1 $ Current ratio b. Does the change in the current ratio from 20Y3 to 2044 indicate a favorable or an unfavorable change? Favorable Feedback Check My Work a. The current ratio (current assets/current liabilities), indicates whether a company has enough short-term assets to b. The ideal current ratio is 2: 1. Anything below 1 indicates negative working capital.

Answer 1

Working capital = Current assets - current liabilities

Working capital 20Y4 = $ 1,597,500 - $ 710,000

Working capital 20Y4 = $ 887,500

Working capital 20Y3 = $ 1,144,000 - $ 520,000

Working capital 20Y3 = $ 624,000

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Current ratio = Current assets $\div$ Current liabilites

Current ratio 20Y3 =   $ 1,144,000 $\div$ $ 520,000

Current ratio 20Y3 = 2.2

Current ratio 20Y4 =  $ 1,597,500 $\div$ $ 710,000

Current ratio 20Y4 = 2.25

The current ratio has increased from 20Y3 to 20Y4 indicating a favorable change in the current ratio.

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	20Y4	20Y3
Working capital	$887,500	$624,000
Current ratio	2.25	2.2

Answer 2