P10.6 (LO 2) Chen Group has been operating for several years, and on December 31, 2020, presented the following statement of financial position (amounts in thousands). Chen Group Statement of Financial Position December 31, 2020 ¥220,000 140,000 70,000 Plant assets (net) ¥220,000 Share capital-ordinary Mortgage payable Accounts payable Inventory 95,000 Receivables 75,000 Cash 40,000 ¥430,000 ¥430,000 The mortgage payable is due in 2023. Instructions Compute the current ratio and the working capital. Transcribed Image Text: P10.6 (LO 2) Chen Group has been operating for several years, and on December 31, 2020, presented the following statement of financial position (amounts in thousands). Chen Group Statement of Financial Position December 31, 2020 ¥220,000 140,000 70,000 Plant assets (net) ¥220,000 95,000 75,000 Share capital-ordinary Mortgage payable Accounts payable Inventory Receivables Cash 40,000 ¥430,000 ¥430,000 The mortgage payable is due in 2023. Instructions Compute the current ratio and the working capital. Step 1 Ratio analysis: This is the quantitative analysis of financial statements of a business enterprise. Under this analysis, different financial indicators are compared to evaluate the efficiency, liquidity, and profitability of the enterprise. Step 2 1) Determine the working capital ratio: Current ratio: It is the ratio of current assets to current liabilities. This ratio measures the ability to repay the short term debts of the organization. Receivables 75,000 40,000 115,000 70,000 1.64 Cash |Current assets |Current liabilities [b] |Current ratio [a] ÷ [b] Thus, the current ratio is 1.64. 2) Compute the working capital: Working capital: It is the excess of current assets over current liabilities. It is calculated by deducting current liabilities from the current assets. Receivables 75,000 40,000 115,000 70,000 45,000 Cash |Current assets |Current liabilities [b] Working capital [a] - [b] Thus, the working capital is 45,000.