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A bakery has total current assets of $83,200 and total current liabilities of $60,150. What is its current ratio?
A1.4
B2.4
C0.7
D1.1
Answer & Solution
Correct answer: A. 1.4
1. The current ratio divides total current assets by total current liabilities.
2. Total current assets are $83,200.
3. Total current liabilities are $60,150.
4. Divide: $83,200 divided by $60,150 equals 1.38.
5. Rounded to one decimal place, the current ratio is 1.4.
6. That value means little on its own: if the industry average for small bakeries were 2.4, this firm would look short of liquidity.
7. Answering 1.1 gives the acid-test ratio, which strips inventory out first, and answering 0.7 flips the fraction upside down.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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