Question

4. Calculate the Current Ratio for 2018 & 2019. What does it indicate and what trend do you see? Will they be capable of paying-off their current liabilities?

	2018	2019
Current Assets	12,494.20	5653.90
Current Liabilities	5684.20	6168.70
Current Ratio

7.   Calculate the Debt to Asset ratio for 2018 and 2019. What does it tell about the long-term survival of the company?

	2018	2019
Total Liabilities	22,980.60	25,450.60
Total Assets	24,156.40	19,216.60
Debt to Asset Ratio

Answer 1

Solution-1)

	2018	2019
Current Assets	12,494.20	5653.9
Current Liabilities	5684.2	6168.7
Current Ratio	2.20: 1	0.92:1

Working: CR = CA/CL = 12,494.20 / 5684.2 = 2.20; 5653.9/6168.7 = 0.92

The ideal current ratio is 1:1. The current ratio is computed as current assets divided with the current liabilities of a firm; and measures the liquidity stand of a company. Idea current ratio is 2:1. It is often assumed that lower is the ratio, lower will be the liquidity and vice versa. Thus year 2018 has a better current ratio; however in year 2019 there is trouble for company in meeting short term obligations.

Solution-2)

	2018	2019
Total Liabilities	22,980.60	25,450.60
Total Assets	24156.40	19216.60
Debt to Asset Ratio	0.95:1	1.32:1

Debt to Asset Ratio = TL/TA = 22,980.60 / 24156.40 = 0.95; 25,450.60 / 19216.60 = 1.32

An ideal debt to equity ratio is nearly 1 to 1.5. In year 2018 the ratio is better however in year 2019 it exceeds one thus indicating that a significant portion of the company's assets are funded with debt thus it is a higher risk of default