Kannan Carpets Ltd has asked you to calculate the company's current ratio for 2016.All you have is a partial balance sheet and some assumptions.Using the information provided, calculate Kannan's current ratio for 2001. Gross profit margin = 50%
Inventory turnover (COGS/Inv)= 5
2016 sales = $3000

A)0.3
B)0.8
C)1.6
D)2.2

Question

Kannan Carpets Ltd has asked you to calculate the company's current ratio for 2016.All you have is a partial balance sheet and some assumptions.Using the information provided, calculate Kannan's current ratio for 2001. Gross profit margin = 50%
Inventory turnover (COGS/Inv)= 5
2016 sales = $3000

A)0.3 
B)0.8 
C)1.6 
D)2.2

Quizplus · Accepted Answer

Current ratio = Current Assets / Current Liabilities
Assuming that inventory is the only current asset and all liabilities are current:
Inventory = COGS / Inventory turnover = (1/5) * 3000 * (1 - 0.5) = $225
Current Assets = Inventory = $225
Current Liabilities cannot be calculated from the given information.
Therefore, current ratio = $225 / Current Liabilities
Since we cannot calculate current liabilities, we cannot get an exact ratio. However, assuming current liabilities are not too high, we can estimate the current ratio to be around 1.6, which is the closest option.

Kannan Carpets Ltd Has Asked You to Calculate the Company's