Question

The following information pertains to Sheridan Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 41000 Accounts receivable (net) 25000 Inventory 19000 Property, plant and equipment 208000 Total Assets $293000 Liabilities and Stockholders’ Equity Current liabilities $ 68000 Long-term liabilities 72000 Stockholders’ equity-common 153000 Total Liabilities and Stockholders’ Equity $293000 Income Statement Sales revenue $ 86000 Cost of goods sold 44600 Gross profit 41400 Operating expenses 19400 Net income $ 22000 Number of shares of common stock 5700 Market price of common stock $20 Dividends per share on common stock 0.90 Cash provided by operations $29200 What is the current ratio for this company?

Answer 1

1.25 times

Explanation:

As per the data given in the question,

As we know that

Current Ratio = current assets ÷ Current liabilities

where,

Current assets is

Asset cash and short-term investments = $41,000

Accounts receivable = $25,000

Inventory = $19,000

Total current asset is $85,000

And, the current liabilities is $68,000

So, the current ratio is

= $85,000 ÷ $68,000

= 1.25 times

We simply applied the above formula to find current ratio for this company.

It determines the liquidity of the company