Question

1. The current ratio (assets/liabilities) of company X is 3.1. Given that the current assets are $186000, find the current liabilities:
2. The board of directors determines that the current ratio must never be below 2.6. What is the maximum amount that the company can borrow?

Answer 1

1. The current ratio (assets/liabilities) of company X is 3.1. Given that the current assets are $186000, find the current liabilities:

Assets = A
Liabilities = L

A / L = 3.1 => L = A / 3.1

A =  186000 => L = 18600 / 3.1 = 6000

Answer: $ 6000

2. The board of directors determines that the current ratio must never be below 2.6. What is the maximum amount that the company can borrow?


A/L ≥ 2.6

=> L ≤ A / 2.6

=> L ≤ 186000 / 2.6

L ≤ 71538.46

Answer: $71538.46