Calculate and analyze liquidity measures Following are the current asset and current liability sections of the balance sheets for Freedom, Inc., at January 31, 2011 and 2010 (in millions):
| January 31, | January 31, |
| 2011 | 2010 |
Current Assets |
|
|
Cash | $ 5 | $ 2 |
Accounts receivable | 3 | 6 |
Inventories | 6 | 10 |
Total current assets | $14 | $18 |
Current Liabilities |
|
|
Note payable | $ 3 | $ 3 |
Accounts payable | 4 | 1 |
Other accrued liabilities | 2 | 2 |
Total current liabilities | $ 9 | $ 6 |
Required:
a.Calculate the working capital and current ratio at each balance sheet date. Round your current ratio answers to two decimal places.
b. Evaluate the firm’s liquidity at each balance sheet date.
c. Assume that the firm operated at a loss during the year ended January 31, 2011. How could cash have increased during the year?
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