Question

In: Accounting

(a) Determine the working capital and current ratio for 2019 and 2018 (b) Does the change in the current ratio from 2018 to 2019 indicate a favorable or an unfavorable change ?

Current assets and current liabilities for HQ Properities Company follow :

Particulars	2019	2018
Current assets	21,75,000	19,00,000
Current Liabilities	15,00,000	12,50,000

(a) Determine the working capital and current ratio for 2019 and 2018

(b) Does the change in the current ratio from 2018 to 2019 indicate a favorable or an unfavorable change ?

Expert Solution

Ratio analysis : It is a financial analysis tool for determining a company's profitability, liquidity, capabilities, and overall performance.

Current ratio : The current ratio is used to calculate the relationship betweencurrent assets and current liabilities. The ideal current ratio is 2:1. To calculate the current ratio, use the formula below.

Working captial = Current assets - Current Liabilities

Particulars	2019	2018
Current assets	21,75,000	19,00,000
Less : Current liabilities	15,00,000	12,50,000
Working capital	$6,75,000	$6,50,000

Calculation of current ratio for the year 2018

Current ratio for 2018 = Current assets / Current liabilities

= $19,00,000 / $12,50,000

= 1.52:1

Calculation of current ratio for the year 2019

Current ratio for 2019 = Currnet assets / Current Liabilities

= $21,75,000 / $15,00,000

= 1.45 : 1

Therefore, the working capital for 2019 is $6,75,000, for 2018 is $6,50,000.Current ratio for 2018 is 1.52:1,for 2019 is 1.45:1

balaji rao answered 2 years ago

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