Chapter 14, Problem 2E

To determine

Working Capital:

The short-term assets which are used for day-to-day operation of a business are called working capital of the business. It is computed by deducting the current liabilities from the current assets of a business.

Current Ratio:

A current ratio measures a company’s ability to pay back its short term liabilities by the current assets of the company. It is ascertained by dividing the current assets by the current liabilities of the company.

Acid-Test Ratio:

It measures the company’s ability to pay back its current liabilities by the quick assets of the company. Quick assets are those current assets which can be converted into cash in a very short period of time.

Computation of following financial data and ratios for this year:

1. Working capital

2. Current ratio

3. Acid-test ratio