Question

These selected condensed data are taken from a recent balance sheet of Sanson Company (in millions of dollars). Cash Accounts receivable Inventory Other current assets Total current liabilities $ 7.2 14.4 18.0 11.1 24.8 Additional information: Current liabilities at the beginning of the year were $35.6 million.

(a) What is the working capital? ____________
(b) What is the current ratio? _____________

Answer 1

a. Working capital = Current Assets - Current Liabilities

Working capital = (Cash + Accounts receivable + Inventory + Other current assets) - Total current liabilities

Working capital = ($7.2 + $14.4 + $18.0 + $11.1) - $24.8

Working capital = $50.7 - $24.8

Working capital = $25.9

b. Current ratio = Current Assets / Current Liabilities

Current ratio = $50.7 / $24.8

Current ratio = 2.04 : 1