Current assets and current liabilities for Brimstone Company follow:

Current assets and current liabilities for Brimstone Company follow: 

                                       2018 | 2019

Current assets.    $1,586,250 | $1,210,000

Current liabilities.      705,000 | 550,000

a. Determine the working capital and current ratio for 2019 and 2018. 

b. Does the change in the current ratio from 2018 to 2019 indicate a favorable or an unfavorable change?

Answer:

a.

Current assets..................

Current liabilitites...............

Working capital..................

Current ratio.....................

2.25

($1,586,250 ÷ $705,000)

2.20

($1,210,000 ÷ $550,000)

b. The increase from 2.20 to 2.25 indicates a favorable change.

The following data (in thousands) were taken from recent financial statements of Starbucks Corporation:

The following data (in thousands) were taken from recent financial statements of Starbucks Corporation:

Year 2 Year 1

Current assets $4,352,700 $4,168,700

Current liabilities 3,653,500 3,038,700

a. Compute the working capital and the current ratio for Year 2 and Year 1. Round to two decimal places.

b.  What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?

Answers:

a.

Current assets...............

Current liabilitites............

Working capital...............

Current ratio..................

b. Starbucks’ working capital declined (decreased) from Year 1 to Year 2 by 

$430,800 ($699,200 – $1,130,000). Starbucks’ current ratio also declined

(decreased) from 1.37 in Year 1 to 1.19 in Year 2. The decline in working capital

and current ratio indicate a concern for short-term creditors; however, Starbucks 

is still in a strong liquidity position.