2019 2018 Cash and equivalents $ 90 $ 75 Accounts receivable 275 300 Inventories 375 350 Total current assets $ 740 $ 725 Net plant and equipment 2,000 1,490 Total assets $ 2,740 $ 2,215 Accounts payable $ 150 $ 85 Accruals 75 50 Notes payable 140 165 Total current liabilities $ 365 $ 300 Long-term debt 450 290 Common stock 1,225 1,225 Retained earnings 700 400 Total liabilities and equity $ 2,740 $ 2,215 Income Statements: 2019 2018 Sales $ 1,885 $ 1,425 Operating costs excluding depreciation 1,250 1,000 EBITDA $ 635 $ 425 Depreciation and amortization 100 75 EBIT $ 535 $ 350 Interest 63 46 EBT $ 472 $ 304 Taxes (25%) 118 76 Net income $ 354 $ 228 Dividends paid $ 54 $ 48 Addition to retained earnings $ 300 $ 180 Shares outstanding 100 100 Price $ 25.00 $ 22.50 WACC 10.00 % What is the firm's 2019 current ratio

The firm's 2019 current ratio = 2019 Current assets/2019 Current liabilities

= $740/$365

= 2.03 : 1

Explanation:

a) Data and Calculations:

                                            2019     2018

Cash and equivalents         $ 90       $ 75

Accounts receivable            275         300

Inventories                            375        350

Total current assets          $ 740     $ 725

Net plant and equipment 2,000      1,490

Total assets                    $ 2,740  $ 2,215

Accounts payable              $ 150      $ 85

Accruals                                  75         50

Notes payable                       140       165

Total current liabilities      $ 365   $ 300

Long-term debt                    450      290

Common stock                  1,225    1,225

Retained earnings                700     400

Total liabilities & equity $ 2,740 $ 2,215

b) The firm's current ratio is a financial ratio that shows the ability of the firm to meet its current liabilities (obligations) with its current assets.  It is expressed as a relationship between the current assets and the current liabilities.

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