Question

Working Capital is ₹ 18,00,000; Trade Payables ₹ 1,80,000; and Other Current Liabilities are ₹ 4,20,000. Calculate the current ratio.

Answer 1

Given:

Working Capital = ₹ 18,00,000

Trade Payables = ₹ 1,80,000

Other Current Liabilities = ₹ 4,20,000

$$\begin{aligned} \text{Current Liabilities} &= \text{Trade Payables} + \text{Other Current Liabilities} \\ &= 1,80,000 + 4,20,000 \\ &= {₹\ 6,00,000} \end{aligned}$$

We know that:

$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

Therefore:

$$\begin{aligned} \text{Current Assets} &= \text{Working Capital} + \text{Current Liabilities} \\ &= 18,00,000 + 6,00,000 \\ &={₹\ 24,00,000} \end{aligned}$$

Now, the Current Ratio formula is:

$$\begin{aligned} \text{Current Ratio} &= \frac{\text{Current Assets}}{\text{Current Liabilities}} \\ &= \frac{24,00,000}{6,00,000} = {4 : 1} \end{aligned}$$