Asked by Franco Volschenk on May 11, 2024
Verified
Gremel Corporation has provided the following financial data:
Required:a. What is the company's working capital?b. What is the company's current ratio?c. What is the company's acid-test (quick) ratio?
Current Ratio
A measure of a company’s capability to settle short-term debts using its current assets.
Acid-Test Ratio
A stringent indicator of a company's short-term liquidity, calculated by dividing liquid assets by current liabilities, excluding inventory from assets.
- Competence in determining a business's solvency using working capital, current ratio, and acid-test ratio.
Verified Answer
RP
Ramya Priya RavinuthalaMay 17, 2024
Final Answer :
a.Working capital = Current assets − Current liabilities= $639,000 − $307,000 = $332,000b.Current ratio = Current assets ÷ Current liabilities= $639,000 ÷ $307,000 = 2.08 (rounded)c.Acid-test (quick) ratio = Quick assets* ÷ Current liabilities= $475,000 ÷ $307,000 = 1.55 (rounded)*Quick assets = Cash + Marketable securities + Current receivables = $241,000 + $0 + $234,000 = $475,000
Learning Objectives
- Competence in determining a business's solvency using working capital, current ratio, and acid-test ratio.