December 31
Year 2 Year 1
Current assets $555,850 $448,000
Current liabilities 149,147 120,162
a. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?
Answer:
a.
Current assets……………
Current liabilities………
Working capital……………
Year 2
$555,850
149,147
$406,703
December 31
Year 1
$448,000
120,162
$327,838
Current ratio……………… 3.73
($555,850 ÷ $149,147)
3.73
($448,000 ÷ $120,162)
b. Under Armour’s working capital increased by $78,865 ($406,703 – $327,838) during Year 2. The current ratio remained the same at 3.73 in Year 1 and Year 2. A current ratio of 3.73 indicates a strong solvency position. Thus, short-term creditors should not be concerned about receiving payment from Under Armour.