Question

Working Capital is ₹ 7,20,000, Trade Payables ₹ 40,000; Other Current Liabilities ₹ 2,00,000, Calculate Current Ratio.

Options

• 2 : 1

• 4 : 1

• 5 : 1

• 7 : 1

Answer 1

4 : 1

Explanation:

Given:

Working Capital = ₹ 7,20,000

Trade Payables = ₹ 40,000

Other Current Liabilities = ₹ 2,00,000

$$\begin{aligned} \text{Current Liabilities} &= \text{Trade Payables} + \text{Other Current Liabilities}\\ &= 40,000 + 2,00,000 \\ &= {₹\ 2,40,000} \end{aligned}$$ 

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

Therefore:
$$\begin{aligned} \text{Current Assets} &= \text{Working Capital} + \text{Current Liabilities} \\ &= 7,20,000 + 2,40,000 \\ &= {₹\ 9,60,000} \end{aligned}$$ 

Now, the Current Ratio formula is:
$$\begin{aligned} \text{Current Ratio} &= \frac{\text{Current Assets}}{\text{Current Liabilities}} \\ &= \frac{9,60,000}{2,40,000} = {4 : 1} \end{aligned}$$