Question

An analyst is reviewing the liquidity of each company in her investment portfolio due to the challenges introduced by COVID-19. A company in her portfolio has total assets of $500 million, of which $80 million are current assets. Total equity for the company is $325 million and long-term liabilities are $100 million. What is this company's current ratio?

0.64

0.79

0.94

1.07

0.80

Answer 1

Total Assets =$500 million

Current Assets = $80 million

Total Equity = $325 million

Long-term Liabilities = $100 million

We Know Total Assets should be equal to total Liabilities. Therefeore, Total Liabilities = $500 million

Therefore, Total Equity + Long-term Liabilities + Short-term Liabilities =500

325+100+Short-term Liabilities =500;

Short-term Liabilities(Current Liabilities) =500-325-100 =$75 million

Therefore, Current Ratio = Current Assets/Current Liabilities

=80/75 = 1.07

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