Question
The Robinson Company has the following current assets and current liabilities for these two years: 2016...
The Robinson Company has the following current assets and current liabilities for these two years:
2016 2017
Cash and marketable securities $50,000 $50,000
Accounts receivable 300,000 350,000
Inventories 350,000 500,000
Total current assets $700,000 $900,000
Accounts payable $200,000 $250,000
Bank loan 0 $150,000
Accruals $150,000 $200,000
Total current liabilities $350,000 $600,000
a. Compare the current ratios between the two years.
b. Compare the acid test ratios between 2016 and 2017. Comment on your findings
Homework Answers
Answer #1
Current ratio of year 2016 is more efficient than 2017 because the current ratio norm is 2:1. It means for every one Dollar of liability 2 dollars of current assets to be maintained.
Acid test ratio norm is 1 : 1. That means for every 1 Dollar of liability 1 dollar of current assets to be maintained. In year 2016 it is exactly as per norm. So year 2016 effective as compared year 2017.
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