CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
Vihaan Traders Ltd has current assets of ₹6,00,000 and current liabilities of ₹4,00,000 at year end. Which statement about its analysis is correct?
The current ratio is 1.5, found by dividing current assets of ₹6,00,000 by current liabilities of ₹4,00,000, and working capital is ₹2,00,000, found by subtracting current liabilities from current assets. Inverting the ratio or adding the figures gives wrong results.
- AIts current ratio is 0.67, showing weak liquidity
- BIts working capital is ₹10,00,000
- CIts current ratio is 1.5 and working capital is ₹2,00,000Correct
- DIts current ratio is 2.0 and working capital is ₹2,00,000
Explanation
Current ratio = 6,00,000 / 4,00,000 = 1.5. Working capital = 6,00,000 - 4,00,000 = ₹2,00,000. The 0.67 option inverts the ratio, and ₹10,00,000 wrongly adds the two figures.
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