current ratio 3:1 working capital 400000 inventory 250000 calculate current asset current libility quick ratio

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Financial Ratio Analysis

Current Ratio

The current ratio is a financial ratio that measures a company's ability to pay its short-term liabilities with its short-term assets.

Current Ratio = Current Assets / Current Liabilities

Given the current ratio of 3:1, we can assume that the company has $3 in current assets for every $1 in current liabilities.

Working Capital

Working capital is the difference between a company's current assets and its current liabilities. It represents the funds that a company has available for its day-to-day operations.

Working Capital = Current Assets - Current Liabilities

Given the working capital of $400,000, we can assume that the company has $400,000 in funds available for its daily operations.

Current Assets

Current assets are the assets that a company expects to convert into cash within one year. These assets include cash, accounts receivable, inventory, and prepaid expenses.

Current Assets = Current Ratio * Current Liabilities

Given the current ratio of 3:1 and current liabilities of $X, we can assume that the company has $3X in current assets.

Based on the information given, we can calculate the current assets as follows:

Current Assets = 3 * Current Liabilities

Current Assets = 3 * $X

Current Assets = $3X

Therefore, the company's current assets are $3X.

Current Liabilities

Current liabilities are the company's debts and obligations that are due within one year. These liabilities include accounts payable, short-term loans, and accrued expenses.

Given the current ratio of 3:1, we can assume that the company has $1 in current liabilities for every $3 in current assets.

Current Liabilities = Current Assets / Current Ratio

Current Liabilities = $3X / 3

Current Liabilities = $X

Therefore, the company's current liabilities are $X.

Quick Ratio

The quick ratio is a financial ratio that measures a company's ability to pay its short-term liabilities with its most liquid assets. It is also known as the acid-test ratio.

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Given the inventory of $250,000, we can calculate the quick ratio as follows:

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Quick Ratio = ($3X - $250,000) / $X

Quick Ratio = ($2.75X) / $X

Quick Ratio = 2.75

Therefore, the company's quick ratio is 2.75, which indicates that the company has enough liquid assets to cover its short-term liabilities.

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