Question

At the end of the recent year, The Gap, Inc., reported total assets of $7,422 million, current assets of $4,309 million, total liabilities of $4,667, current liabilities of $2,128 million, and stockholders' equity of $2,755 million. What is its current ratio and what does this suggest about the company?

Answer 1

The current ratio of The Gap, Inc. is approximately 2.02, which suggests the company is in a healthy financial position in terms of short-term solvency and liquidity.

Step-by-step explanation:

The student is asking about calculating the current ratio of The Gap, Inc. and interpreting what it suggests about the company's financial health. The current ratio is calculated by dividing current assets by current liabilities. Based on the provided figures, The Gap, Inc.'s current ratio would be $4,309 million (current assets) divided by $2,128 million (current liabilities), resulting in a current ratio of approximately 2.02.

This ratio suggests that for every dollar of current liabilities, The Gap, Inc. has $2.02 in current assets, which implies that the company has a good level of short-term financial solvency. It indicates that The Gap, Inc. should be able to cover its short-term obligations without facing liquidity issues.