Calculate the amount of working capital (in $) and the current ratio for the given company. Round ratios to the nearest hundredth. Company Current Current Assets Liabilities Working Capital Current Ratio a florist shop $3,900 $1,250 $
Calculate the amount of working capital (in $) and the current ratio for the given company. Round ratios to the nearest hundredth. Company Current Current Assets Liabilities Working Capital Current Ratio a florist shop $3,900 $1,250 $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
calculate the quick assets (in $) and acid test ratio for the given company. round ratios to the nearest hundredth.
![**How to Calculate Working Capital and Current Ratio**
When analyzing a company's financial health, it is essential to understand its working capital and current ratio. These indicators help in assessing a company's capability to pay off its short-term liabilities with its short-term assets.
### Working Capital Calculation
Working capital is a measure of a company's operational efficiency and short-term financial health. It is calculated using the formula:
\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]
### Current Ratio Calculation
The current ratio is an indication of a company's ability to pay short-term obligations. It is calculated using the formula:
\[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \]
### Example: A Florist Shop
Let's apply these formulas to a florist shop with the following financials:
- **Current Assets**: $3,900
- **Current Liabilities**: $1,250
### Step-by-Step Calculation
1. **Working Capital**:
\[ \text{Working Capital} = 3,900 - 1,250 = 2,650 \]
So, the working capital for the florist shop is $2,650.
2. **Current Ratio**:
\[ \text{Current Ratio} = \frac{3,900}{1,250} \approx 3.12 \]
So, the current ratio for the florist shop is approximately 3.12 (rounded to the nearest hundredth).
### Summary
From the calculations, we observe the following financial metrics for the florist shop:
- **Working Capital**: $2,650
- **Current Ratio**: 3.12
These metrics suggest that the florist shop has a healthy financial position with significant ability to cover its short-term liabilities with its current assets.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58acaeb0-447a-4f64-ba93-093e5846ac29%2F35477711-dc41-440c-9e0d-f41a9faca471%2F4o7kxq4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**How to Calculate Working Capital and Current Ratio**
When analyzing a company's financial health, it is essential to understand its working capital and current ratio. These indicators help in assessing a company's capability to pay off its short-term liabilities with its short-term assets.
### Working Capital Calculation
Working capital is a measure of a company's operational efficiency and short-term financial health. It is calculated using the formula:
\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]
### Current Ratio Calculation
The current ratio is an indication of a company's ability to pay short-term obligations. It is calculated using the formula:
\[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \]
### Example: A Florist Shop
Let's apply these formulas to a florist shop with the following financials:
- **Current Assets**: $3,900
- **Current Liabilities**: $1,250
### Step-by-Step Calculation
1. **Working Capital**:
\[ \text{Working Capital} = 3,900 - 1,250 = 2,650 \]
So, the working capital for the florist shop is $2,650.
2. **Current Ratio**:
\[ \text{Current Ratio} = \frac{3,900}{1,250} \approx 3.12 \]
So, the current ratio for the florist shop is approximately 3.12 (rounded to the nearest hundredth).
### Summary
From the calculations, we observe the following financial metrics for the florist shop:
- **Working Capital**: $2,650
- **Current Ratio**: 3.12
These metrics suggest that the florist shop has a healthy financial position with significant ability to cover its short-term liabilities with its current assets.
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