Q 2.29: Val-Tek has current assets of $1,700,000 and current liabilities of $900,000. If they pay $100,000 owed to a creditor, what will their new current ratio be?

2 : 1

Explanation:

current ratio = current asset/current liability

If current liability was $900,000 less $100,000= $800,000

Therefore the current ratio=

$1,700,000/$800,000 =

2 : 1

The new current ratio is 2.125.

Explanation: The current ratio is expressed as current assets divided by current liabilities. If the company pays $100,000 due to creditors, it means the current liabilities would reduce to $800,000 ($900,000 minus $100,000). Therefore, the new current ratio will be $1,700,000 divided by $800,000 to give 2.125.

The ratio is one of the types of liquidity ratios. It is usually used to know by what extent the company can maximize the use of its current assets to settle obligations falling due within a year.

The result therefore means the company has twice the buffer to settle its obligations falling due within a year, even after paying $100,000 to its creditors.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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