Cash Tk. 2,00,000, Closing stock Tk. 5,000, Bank overdraft Tk. 2,000, Accounts payable Tk. 3,000, Gross profit Tk. 50,000, Accounts receivable Tk. 1,20,000, Outstanding salary Tk. 5,000, Net sales Tk. 2,50,000, Prepaid insurance premium Tk. 4,000.
Required: Calculate the following ratio: (i) Current ratio, (ii) Acid test ratio, (iii) Gross profit ratio and (iv) Gross working capita.
Based on the financial information provided for Bata Company/Rasel Company, here are the calculations for the required ratios and metric.
Financial Components Summary
First, the components for Current Assets (CA) and Current Liabilities (CL) are determined:
Current Assets (CA)
| Item | Amount (Tk.) |
| Cash | 2,00,000 |
| Closing stock (Inventory) | 5,000 |
| Accounts receivable | 1,20,000 |
| Prepaid insurance premium | 4,000 |
| Total Current Assets | 3,29,000 |
| Item | Amount (Tk.) |
| Bank overdraft | 2,000 |
| Accounts payable | 3,000 |
| Outstanding salary | 5,000 |
| Total Current Liabilities | 10,000 |
Calculated Ratios and Metric
(i) Current Ratio
The Current Ratio measures the company’s ability to pay off its short-term liabilities with its short-term assets.
(ii) Acid Test Ratio (or Quick Ratio)
The Acid Test Ratio (or Quick Ratio) is a more stringent liquidity test, as it excludes inventory and prepaid expenses from current assets.
Based on the financial information provided for Bata Company/Rasel Company, here are the calculations for the required ratios and metric.
Financial Components Summary
First, the components for Current Assets (CA) and Current Liabilities (CL) are determined:
Current Assets (CA)
| Item | Amount (Tk.) |
| Cash | 2,00,000 |
| Closing stock (Inventory) | 5,000 |
| Accounts receivable | 1,20,000 |
| Prepaid insurance premium | 4,000 |
| Total Current Assets | 3,29,000 |
Current Liabilities (CL)
| Item | Amount (Tk.) |
| Bank overdraft | 2,000 |
| Accounts payable | 3,000 |
| Outstanding salary | 5,000 |
| Total Current Liabilities | 10,000 |
Calculated Ratios and Metric
(i) Current Ratio
The Current Ratio measures the company’s ability to pay off its short-term liabilities with its short-term assets.
Current Ratio=Current LiabilitiesCurrent Assets
Current Ratio=Tk. 10,000Tk. 3,29,000=32.9
Current Ratio=32.9:1
(ii) Acid Test Ratio (or Quick Ratio)
The Acid Test Ratio (or Quick Ratio) is a more stringent liquidity test, as it excludes inventory and prepaid expenses from current assets.
Quick Assets=Current Assets−Closing Stock−Prepaid Insurance Premium
Quick Assets=Tk. 3,29,000−Tk. 5,000−Tk. 4,000=Tk. 3,20,000
Acid Test Ratio=Current LiabilitiesQuick Assets
Acid Test Ratio=Tk. 10,000Tk. 3,20,000=32.0
Acid Test Ratio=32.0:1
(iii) Gross Profit Ratio
The Gross Profit Ratio measures the percentage of sales revenue that remains after subtracting the cost of goods sold.
(iv) Gross Working Capital
Gross Working Capital is simply the total of all current assets.
