Question

sdj, inc., has net working capital of $2,060, current liabilities of $5,550, and inventory of $1,250. a. what is the current ratio? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. what is the quick ratio? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

The current ratio is a measure of a company's ability to pay its current liabilities from its current assets. To calculate the current ratio, you divide the current assets by the current liabilities.

Net working capital = Current assets - Current liabilities

Current assets = Net working capital + Current liabilities = $2,060 + $5,550 = $7,610

Current ratio = Current assets / Current liabilities = $7,610 / $5,550 = 1.37

So, the current ratio for SDJ, Inc. is 1.37.

b. The quick ratio, also known as the acid-test ratio, is a more stringent measure of a company's liquidity. It excludes inventory from current assets because inventory is considered the least liquid of the current assets. To calculate the quick ratio, you divide the sum of cash and cash equivalents, marketable securities, and accounts receivable by current liabilities.

Quick ratio = (Cash + Cash Equivalents + Accounts Receivable) / Current Liabilities = ($0 + $0 + $0) / $5,550 = 0

So, the quick ratio for SDJ, Inc. is 0, which means that the company does not have enough liquid assets to cover its current liabilities. This indicates that the company might have difficulty in paying off its short-term obligations if they were to come due at this point in time.