Current Position Analysis The following data were taken from the balance sheet o

Question

Current Position Analysis

The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

b. The liquidity of Nilo has from the preceding year to the current year. The working capital, current ratio, and quick ratio have all . Most of these changes are the result of an in current assets relative to current liabilities.

Current Year Previous Year Current assets:   Cash $433,200 $353,600   Marketable securities 501,600 397,800   Accounts and notes receivable (net) 205,200 132,600   Inventories 752,400 444,100   Prepaid expenses 387,600 283,900   Total current assets $2,280,000 $1,612,000 Current liabilities:   Accounts and notes payable   (short-term) $348,000 $364,000   Accrued liabilities 252,000 156,000   Total current liabilities $600,000 $520,000

Explanation / Answer

(a) Working capital = Current asset- Current liabilities

So,for current year Working capital = 22,80,000- 6,00,000=16,80,000

For previous year working capital=16,12,000-5,20,000=10,92,000

(b) Current ratio= Current asset/Current liabilities

Second part of question is not much clear. Ask it with clarity

So for current year Current ratio= 22,80,000/6,00,000=3.8 or 4 approx

for previous year= 16,12,000/5,20,000=3.1 or 3 approx

(C) Quick ratio=Quick asset/Current liabilities

Quick assets= Current asset- Inventories-Prepaid stock

For current year( quick assets)= 22,80,000-7,52,400-3,87,600=11,40,000

So quick ratio=11,40,000/600000=1.9 or 2 approx

For previous year (quick assets)=16,12,000-4,44,100-2,83,900=8,84,000

Quick ratio=8,84,000/5,20,000=1.7 or 2 approx

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