Question

Suppose the following selected condensed data are taken from a recent balance sheet of Bob Evans Farms (in millions of dollars). Cash $ 30.7 Accounts receivable 21.4 Inventory 27.4 Other current assets 22.5 Total current assets $102.0 Total current liabilities $200.0 Compute working capital and the current ratio.

Answer 1

Answer:

For working capital, it is -$98million or($98million).

For current ratio, it is 0.51

Explanation:

1. The formula for the working capital is current asset minus current liabity.

Current assets are cash, accounts receivable, inventory and other Curren assets.

The addition of all these figures for current assets($ 30.7+$21.4+27.4+22.5) totalled $102.0

Current liability is $200.0

Therefore, working capital is:

$102 - $200

= -$98million or ($98million)

The working capital is in negative of $98million.

The current ratio = current asset/current liability.

$102.0million/$200.0million

=0.51

The current ratio of 0.51 means the company cannot meet its short term liquidation. There is a liquidity problem.

The ideal current ratio is at least 1.0