crazen company has the following information in its financial statements: cash 3,000 accounts receivable 4,000 inventory 5,000 prepaid rent 2,000 accounts payable 10,000 what is crazen's current ratio?

Ratios provide a quick but powerful analysis tool to determine the financial health of operations. Ratios can be created to suit the needs of the company. Ratios can analyze any financial or non-financial aspects of a company.

The current ratio of a firm is a liquidity ratio which reports the number of times a company's current assets can service total current liabilities/obligations. A ratio of 1:1 would indicate that it would take 100% of current assets to be converted to cash to service 100% of current liabilities. A ratio in excess of 1:1, as shown for the company analyzed in this problem reports excess current assets to service current obligations. A ratio of less than 1:1 would indicate that a firm would have to inject further equity into the firm or convert long-term assets to support current obligations. The ratio is calculated by dividing total current assets by total current liabilities.

Current ratio = Current assets/Current liabilities

= Cash + Accounts receivable + Prepaid rent + Inventory/ Accounts payable

= 3000 + 4000 + 2000 + 5000/10000

= 14000/10000

= 1.4

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