Answer: Please refer to the explanation section
Step-by-step explanation:
Te Question is incomplete. The financial statements of Burnaby Mountain Trading Company are missing. We will however attempt to answer this question using assumed figures to illustrate how Current ratio is calculated and interpreted.
Current ratio measures a company liquidity. Current Measures a company's ability to pay its short term liabilities or current liabilities. Current ratio is calculated as a ratio of current assets over current liabilities. We divide current assets by current Liabilities.
Current asset are assets maturing within a year, includes assets such as Inventory, Bank , Accounts Receivables etc. Current Liabilities are obligations or liabilities that are due within 12 months, Includes Liabilities like Trade Payable
Assumed figures
Current Assets
Inventory = $10 000
Accounts Receivables = $6000
Cash on Hand(Bank) = $2000
Current Liabilities
Creditors (Trade Payable) = $9000
Current Assets = $10 000 + $6000 + $2000 = $18000
Current Liabilities = $9000
Current Ratio = Current assets : Current Liabilities
Current Ratio = $18000/$9000 : $9000/$9000
Current Ratio = 2 : 1
Current ratio of 2:1 is a good indication of the company's (Burnaby Mountain Trading Company) ability to pay its short term liabilities. Current assets of Burnaby Mountain Trading company are more than enough to cover short term liabilities, for each dollar of owed the company has 2 dollars to cover each dollar That Burnaby Mountain Trading Company owes