Question

Compute the current ratio and acid-test ratio for each of the separate cases. Camaro GTO TorinoCash $ 2,000 $110 $1,000Short-term investments 50 0 580Current receivables 350 470 700Inventory 2,600 2,420 4,230Prepaid expenses 200 500 900Total current assets $ 5,200 $3,500 7,410Current liabilities $ 2,000 $1,000 3,800

Answer 1

The Current and Acid Test ratios help show whether a company will be able to pay of its current obligations with its current assets.

Current Ratio:

Camero : GTO

= Current Assets / Current liabilities = 3,500 / 1,000

= 5,200 / 2,000 = 3.50

= 2.60

Torino

= Current assets / Current liabilities

= 7,410 / 3,800

= 1.95

Acid-Test ratio

Camero

= (Current Assets - Inventory - Prepaid expenses) / Current liabilities

= (5,200 - 2,600 - 200) / 2,000

= 1.20

GTO

= (3,500 - 2,420 - 500) / 1,000

= 0.58

Torino

= (7,410 - 4,230 - 900) / 3,800

= 0.60