Question

Please solve Current Ratio for the companies:

year 2019

1. Johnson & Johnson

2. Bayer

Answer 1

Formula for Current Ratio = Current Asset / Current Liabilities.

This Ratio mainly helps us to determine whether the companies has enough Liquidity (Cash and Trade Receivables) to cover its Current Liabilities (Trade Payables and Current Portion of Long term Liabilities). There are a lot more elements in the Current Assets and Current Liabilities, I have just mentioned the most Liquid Ones.

Johnson & Johnson

As at Year Ended December 2018 (Amount in Millions)

Current Assets = $ 46083

Current Liabilities = $ 31230

Therefore Using the above mentioned Formula

Current Ratio = 46083 / 31230 = 1.475

A ratio above one shows that the firm has enough Assets to cover its Liabilities

As at 2019 (From the Statement as at 30/09/2019) (Amount in Millions)

Current Assets = $ 44333

Current Liabilities = $35162

Therefore Current Ratio = 1.26

This shows that the company can still cover its Liabilities but the ratio has deteriorated as compared to the end of last year.

Bayer

As at Year Ended December 2018 (Amount in Euro Millions)

Current Assets = 31065

Current Liabilities = 23125

Therefore Using the above mentioned Formula

Current Ratio = 31065 / 23125 = 1.34

A ratio above one shows that the firm has enough Assets to cover its Liabilities

As at 2019 (From the Statement as at 30/09/2019) (Amount in Euro Millions)

Current Assets = 33513

Current Liabilities = 26057

Therefore Current Ratio = 33513 / 26057 = 1.29

This shows that the company can still cover its Liabilities but the ratio has deteriorated as compared to the end of last year.