Question

1. Calculating working capital Roost and Sing Corp.'s CFO has decided to take a closer look at the firm's short-term assets and liabilities. Roost and Sing Corp.'s balance sheet follows. Balance Sheet Cash $170,000 Accounts receivable $55,000 $200,000 $110,000 $170,000 $480,000 Inventory $135,000 Total current assets Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total common equity Total liabilities and equity $360,000 $350,000 Net plant and equipment Total assets $420,000 $900,000 $190,000 $900,000

Drop-down options: (number value), (number value), (number value), (1.37x, 0.40x, 2.50x, 1.33x), (increase, decrease, stay same).

Answer 1

1.

Working Capital = Current Assets

Thus,

Working capital = $480,000

2

Net working capital = Current assets - Current liabilities

Thus,

Net working capital = 480000 - 360000 = $120,000

3

$\dpi{100} \small \textup{Net Operating Working Capital = (Current Assets - Non-operating Current Assets) - (Current liabilities - Non-operating Current liabilities) }$

Non-operating current liabilities = Notes payable = $135,000

Thus,

$\dpi{100} \textup{Net Operating Working Capital = 480,000 - (360,000 - 135,000) }$

$\dpi{100} \large \textup{Net Operating Working Capital = \$255,000 }$

4.

Current ratio = Current assets/current liabilities

thus,

Current ratio = 480000/360000 = 1.33 x

5.

If inventory purchased with long-term debt, it will increase current assets but will not change current liabilities

thus,

Current ratio will INCREASE

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.