Ratios: Working Capital and the Current Ratio: 동영상 및 연습문제

The current ratio is calculated using the formula: $\frac{\mathrm{Current\; Assets}}{\mathrm{Current\; Liabilities}}$. This ratio measures a company's ability to cover its short-term obligations with its short-term assets. A current ratio above 1.0 indicates that the company has more current assets than current liabilities, suggesting good liquidity and the ability to pay off debts due within one year. Conversely, a current ratio below 1.0 is a red flag, signaling potential liquidity problems because the company may not have enough assets to cover its upcoming liabilities.

Working capital is calculated as the difference between current assets and current liabilities: $\mathrm{Working\; Capital}=\mathrm{Current\; Assets}-\mathrm{Current\; Liabilities}$. Positive working capital means the company has more current assets than liabilities, indicating short-term financial stability and the ability to meet upcoming obligations. Negative working capital suggests the opposite, signaling potential short-term financial problems where the company might struggle to pay its debts. However, an excessively high working capital might indicate inefficient asset management, such as holding too much cash that could be better invested.

A current ratio below 1 means that a company has less than one dollar of current assets for every dollar of current liabilities. This is a red flag because it suggests the company may not have enough liquid assets to cover its short-term debts and obligations. Such a situation can lead to liquidity problems, forcing the company to sell fixed assets or take on long-term debt to meet its immediate financial commitments. Therefore, a current ratio under 1 often signals financial distress in the short term.

Having a very high working capital means the company holds significantly more current assets than current liabilities. While this indicates strong short-term financial health, it could also imply inefficient asset management. For example, the company might be holding excessive cash or inventory that is not being used productively. This idle capital could have been invested in long-term assets or other opportunities to generate higher returns. Therefore, while positive working capital is good, an unusually high amount may suggest the company is not optimizing its resources effectively.

To calculate the current ratio, divide current assets by current liabilities: $\frac{\mathrm{450,000}}{\mathrm{315,000}}$. This equals approximately 1.43, indicating the company has \$1.43 in current assets for every \(1 of current liabilities, which is a good liquidity position. For working capital, subtract current liabilities from current assets: $\mathrm{450,000}-\mathrm{315,000}=\mathrm{135,000}$. This means the company has \)135,000 more in current assets than liabilities, showing positive short-term financial stability.