Question

These selected condensed data are taken from a recent balance sheet of Bob Evans Farms (in millions of dollars).

Cash $ 29.3
Accounts receivable 20.5
Inventory 28.7
Other current assets
24.0

Total current assets $102.5
Total current liabilities $201.2


Compute working capital and the current ratio. (If answer is negative enter it with a negative sign preceding the number e.g. -15,000 or in parenthesis e.g. (15,000). Round Current Ratio to 2 decimal places, e.g. 0.78 : 1.)

Answer 1

Answer:

The working capital is -$98.7 while the current ratio is 0.51 : 1

Explanation:

The working capital is the amount of capital that is available for the day to day operations of the business. The working capital represents the liquidity situation of the business. The working capital is calculated as follows,

Working Capital = Current Assets - Current liabilities

Working Capital = 102.5 - 201.2  =  - $98.7

The current ratio is a measure of the liquidity of a firm that measures its capacity to pay its short term obligations. The current ratio tells us the amount of current assets available for every 4! of current liability.

Current ratio = Current Assets  /  Current Liabilities

Current ratio = 102.5 / 201.2

Current ratio  =  0.51 : 1