Assets Liabilities Accounts payable 25,000Cash 8, 000 Bank overdrafts 1,500Accounts receivables 10, 000 Long term loans 40,000Inventory 10, 000 Total liabilities 66,500Property, Plant and Equipment 100, 000 Shareholders Equity Share capital 35,000 Retained earnings 26, 500Total Assets 128, 000 Total Liabilities and SE 128, 000 You have the following information from the balance sheet of Company X as at 30 June 2018.Calculate current ratio.
Question
Assets Liabilities Accounts payable 25,000Cash 8, 000 Bank overdrafts 1,500Accounts receivables 10, 000 Long term loans 40,000Inventory 10, 000 Total liabilities 66,500Property, Plant and Equipment 100, 000 Shareholders Equity Share capital 35,000 Retained earnings 26, 500Total Assets 128, 000 Total Liabilities and SE 128, 000 You have the following information from the balance sheet of Company X as at 30 June 2018.Calculate current ratio.
Solution
The current ratio is calculated by dividing current assets by current liabilities.
From the balance sheet, we can see that the current assets are Cash (8,000) + Accounts Receivables (10,000) + Inventory (10,000) = 28,000.
The current liabilities are Accounts Payable (25,000) + Bank Overdrafts (1,500) = 26,500.
So, the current ratio is 28,000 / 26,500 = 1.06 (rounded to two decimal places).
This means that for every dollar of current liabilities, the company has $1.06 of current assets.
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