Question

Current Assets ₹ 20,00,000, Inventories ₹ 10,00,000, Working Capital ₹ 12,00,000. Calculate Current Ratio.

Hints:

Inventories are already included in Current Assets.

Current Liabilities = Current Assets − Working Capital.

Answer 1

Given:

• Working Capital = ₹ 9,00,000
• Total Debts (Liabilities) = ₹ 19,50,000
• Long-Term Debts = ₹ 15,00,000

$$\begin{aligned} \text{Current Liabilities} &= \text{Total Debts} - \text{Long-Term Debts} \\ &= 19,50,000 - 15,00,000 \\ &= \mathbf{₹\ 4,50,000} \end{aligned}$$

We know that:
$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

Therefore:
$$\begin{aligned} \text{Current Assets} &= \text{Working Capital} + \text{Current Liabilities} \\ &= 9,00,000 + 4,50,000 \\ &= \mathbf{₹\ 13,50,000} \end{aligned}$$

Now, the Current Ratio formula is:
$$\begin{aligned} \text{Current Ratio} &= \frac{\text{Current Assets}}{\text{Current Liabilities}} \\ &= \frac{13,50,000}{4,50,000} = \mathbf{3 : 1} \end{aligned}$$