Question

The balance sheet of Crimpson Solutions Ltd. has cash of $125 million, accounts receivable of $245 million, inventory of $160 million, and equipment worth $450 million. The company also has accounts payable of $120 million, notes payable of $280 million, and corporate bonds of $365 million. Crimpson's current ratio is:

Answer 1

Answer:

The Crimpson's current ratio is 1.32 times

Explanation:

Current Ratio: The current ratio is that ratio which meet short term liquidity. It comprises of two things i.e Current assets and current liabilities.

Current assets is that assets which are converted into cash in less than one year. It includes stock, accounts receivables, cash, etc

Current liabilities is that liabilities which are payable in less than one year. It includes creditors, accounts payable etc

Current ratio = current assets ÷ current liabilities

where,

current assets is equals to

= Cash + accounts receivable + inventory

= $125 + $245 + $160

= $530 million

And, current liabilities equals to

= Accounts payable + notes payable

= $120 + $280

= $400 million

We assume notes payable is less than 12 months so, we include in current liabilities

Now put these values over the above formula.

So, the current ratio = $530 ÷ $400 = 1.32 times

Hence, Crimpson's current ratio is 1.32 times