An organization has the following current assets 100000 in c

An organization has the following current assets: $100,000 in cash, $50,000 in securities, $20,000 in accounts receivable, and $40,000 in inventory. In terms of current liabilities, the company has $60,000 in accounts payable, $20,000 in current debt, and $20,000 in accrued expenses. What is the current ratio of the company, and what is your interpretation of the current ratio?

Solution

Current assets = 100000+50000+20000+40000 = 210000

Current liabilities = 60000+20000+20000 = 100000

Current ratio = Current assets/Current liabilities

= 210000/100000

Current ratio = 2.10 :1

Current ratio is the measure of liquidity that defines how many times current assets have for payment of current liabilities