Year 2 Year 1
Current assets $2,756,400 $2,035,800
Current liabilities 1,779,100 1,581,000
a. Compute the working capital and the current ratio for 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……………
Current ratio………………
Year 2 Year 1
$2,756,400 $2,035,800
1,779,100 1,581,000
$ 977,300 $ 454,800
1.55 1.29
($2,756,400 ÷ $1,779,100) ($2,035,800 ÷ $1,581,000)
b. Starbucks' working capital improved (increased) from Year 1 to Year 2 by $522,500 ($977,300 – $454,800). Starbucks' current ratio also improved (increased) from 1.29 in Year 1 to 1.55 in Year 2. The improved working capital and current ratio indicate that short-term creditors should not be concerned about receiving payment from Starbucks.