# 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