The Current Ratio
The current ratio is also known as the working capital ratio and is normally presented as a real ratio. That is, the working capital ratio looks like this:
Current Assets: Current Liabilities = x: y eg 1.75: 1
The Carphone Warehouse is our business of choice, so here is the information to help us work out its current ratio.
|Consolidated Balance Sheet||31 March 2001||25 March 2000|
|Total Current Assets||315,528||171,160|
|Creditors: Amounts falling due within one year||222,348||173,820|
As we saw in the brief review of accounts section with Tesco's financial statements, the phrase current liabilities is the same as Creditors: Amounts falling due within one year.
Here's the table to fill in. OK, so we've done this one for you!
|Current Ratio For the Carphone Warehouse|
|31 March 2001||Current Assets: Current Liabilities||315,528: 222,348||1.42: 1|
|25 March 2000||Current Assets: Current Liabilities||171,160: 173,820||0.98: 1|
Maths revision. How did we get 1.42: 1 for the year ended 31 March 2001? All we did was to divide the current assets by the current liabilities and that gives us:
so we automatically know that our ratio is 1.42: 1
The same with the year before:
so the ratio is 0.98: 1