# Review of liquidity ratios

Q44. Review of liquidity ratios
Calculate the following liquidity ratios based on the information below:
(1) Current ratio
(2) Quick ratio
(3) Working capital ratio

Cash = $350,000 Accounts receivable =$850,000
Inventory = $900,000 Property, plant and equipment =$1,700,000

Accounts payable = $520,000 Short-term borrowings =$980,000

A44.
Quick assets
= Cash + Accounts receivable
= $350,000 +$850,000
= $1,200,000 Current assets =$2,100,000
= Cash + Accounts receivable + Inventory
= $350,000 +$850,000 + $900,000 =$2,100,000

Total assets
= Cash + Accounts receivable + Inventory + Property, plant and equipment
= $350,000 +$850,000 + $900,000 +$1,700,000
= $3,800,000 Current liabilities = Accounts payable + Short-term borrowings =$520,000 + $980,000 =$1,500,000

Working capital
= Current assets – Current liabilities
= $2,100,000 –$1,500,000
= $600,000 (1) Current ratio = Current assets / Current liabilities =$2,100,000 / $1,500,000 = 1.40 (2) Quick ratio = Quick assets / Current liabilities =$1,200,000 / $1,500,000 = 0.80 (3) Working capital ratio = Working capital / Total assets = (Current assets – Current liabilities) / Total assets = ($2,100,000 – $1,500,000) /$3,800,000
= $600,000 /$3,800,000 = 0.16