Question

Current Assets are ₹ 10,00,000; Inventories ₹ 5,00,000, Working Capital ₹ 6,00,000, calculate Current Ratio.

Options

• 2.5 : 1

• 1 : 1

• 2 : 1

• 1 : 2

Answer 1

2.5 : 1

Explanation:

Given:

Current Assets = ₹ 10,00,000

Inventories = ₹ 5,00,000

Working Capital = ₹ 6,00,000

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

Therefore:

$$\begin{aligned} \text{Current Liabilities} &= \text{Current Assets} - \text{Working Capital} \\ &= 10,00,000 - 6,00,000 \\ &= \mathbf{₹\ 4,00,000} \end{aligned}$$ 

Now, the Current Ratio formula is:
$$\begin{aligned} \text{Current Ratio} &= \frac{\text{Current Assets}}{\text{Current Liabilities}} \\ &= \frac{10,00,000}{4,00,000} = \mathbf{2.5 : 1} \end{aligned}$$