Unit 9 - Working Capital I: Cash and Receivables

Question 1

Net Working Capital is

Answer 1

Current Assets MINUS Current Liabilities

Question 2

Current ratio is the most common measure of liquidity and it’s formula is

Answer 2

Current Assets DIVIDED / Current Liabilities

The higher the # the better as it measures liquidity

Note that Current Assets includes Inventory & Prepaid Expenses for CURRENT RATIO FORMULA

Question 3

Quick Ratio is

Answer 3

Current Assets (cash, ST securities, AR ) DIVIDED / Current Liab

Note that for QUICK RATIO - for Current Assets (EXCLUDES Inventory & Prepaid Expenses)