Question

The Balance sheet of Mister Ribs Restaurant reports current assets of $30,000 and current liabilities of $15,000.a. Calculate the current Ratio.b. Does it appear likely that Mister Ribs will be able to pay its current liabilities as they come due in the next year?

Answer 1

Answer:

Current Ratio = 2; Yes

Explanation:

First, to solve for current ratio, simply divide the current assets by the current liabilities.

So the current ratio would be $30,000 / $15,000 resulting to 2

Now, a current ratio greater than one means that Mister Ribs will be able to pay its current liabilities as they come due in the next year.

However, because the current ratio at any one time is just a snapshot, it is usually not a complete representation of a company’s liquidity or solvency.