Question

A company has current ratio 3:1, net working capital rs.4,00,000 and stock of rs.2,50,000. calculate quick ratio.

Answer 1

current ratio = current asset / current liabilities

Let current asset = CA

current liabilities = CL

3/1     = CA/CL

cross multiply

CA  = 3 CL

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working capital = CA - CL

400000 = CA- CL

substitute CA = 3 Cl

so , 400000 = 3 CL - CL

    400000 = 2 Cl

CL = 400000/ 2

CL = 200000

CA = 3 CL

CA = 3* 200000

CA = 600000

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Quick asset = (CA - stock) / CL

                    = ( 600000 - 250000) / 200000

                    = 350000

Quick asset = 350000

Answer 2

Quick Ratio = 1.75 : 1

Explanation:

Solution :

Current Ratio = 3:1

Current Ratio =

$\dfrac{Current \: Assets}{Current \: Liabilities} = \dfrac{3}{1}$

Suppose,

Current Liabilities be x

Current Assets = 3x

Working Capital = Rs. 4,00,000

Working Capital = Current Assets - Current Liabilities

4,00,000 = 3x - x

4,00,000 = 2x

x = 4,00,000/2

x = 2,00,000

Current Liabilities = Rs 2,00,000

Current Assets = 3x

= 2,00,000 × 3

= 6,00,000

Current Assets = Rs. 6,00,000

Quick Ratio =

$\dfrac{Quick \: Assets}{Current \: Liabilities}$

Quick Assets = Current Assets - Stock

= 6,00,000 - 2,50,000

= 3,50,000

• Quick Assets = 3,50,000
• Current Liabilities = Rs 2,00,000

Quick Ratio =

$\dfrac{Quick \: Assets}{Current \: Liabilities}$

$\dfrac{3,50,000}{2,00,000}$

= 1.75

Quick Ratio = 1.75 : 1

Hence,

Quick Ratio = 1.75 : 1