Ability to pay current liabilities

Question 1

Working Capital

Answer 1

-Pay Current Liabilities
M. ability to meet short term obligations with current assets

= Current assets - current liabilities

Question 2

Cash Ratio

Answer 2

-Pay Current Liabilities
*most conservative valuation b/c only looks at cash
M. ability to meet short term obligations with cash/cash equivalents

= (cash + cash equivalents) / total current liabilities
= 1 => PERFECT

Question 3

Acid Test Ratio

Answer 3

-Pay Current Liabilities
M. whether company COULD pay ALL current liabilities (hypothetically)

= (cash/cash equivalents + short term investments + net current receivables) / total current liabilities
= .9 - 1 => PERFECT

Question 4

Current Ratio

Answer 4

Pay Current Liabilities
MOST WIDELY USED
M. ability to pay current liabilities with current assets

= total current assets / total current liabilities
= 1.5 => PERFECT