Activitys RATIO ANALYSIS Current Ratio Purpose: Understand the information provided by the current ratio, Identify the expected range and whether an increasing or decreasing trend is usually preferred The current ratio compares current assets to current liabilities. This ratio measures the ability to pay current debts. It is a measure of short-term liquidity. CURRENT RATIO - Current resets Current liabilities ORACLE $21/99 GENERAL MOTORS (OM) 12/311198 $44,363,000 547,806,000 HOME DEPOT 101/99 $4,933,000 ($ ia 000) GAP INC 160/99 Current Assets $1,871,824 $1,553,103 Cument liabilities Sowo: Ducours, The Comprar DISEC, 2000, $5,447,274 $2,857,000 $3,046,423 1. For each company listed above, compute the current ratio. Record your results below. Current ratio: 1.21 2. The current ratios computed above are primarily in the range (less than 1/1 through 3/3 through 5/ more than 5). 3. The company that has the strongest short-term liquidity as measured by the current ratio is (Gap Inc/GM/Home Depot / Oracle). 4. For the current ratio, a(n) (increasing / decreasing) trend is generally considered favorable. 5. Current liabilities are usually paid off with current assets. The corporation nor able to pay off all current liabilities at this time is (Gap Inc / GM/Home Depot / Oracle). Does this indicate the corporation is insolvent, or unable to pay its bills? (Yes/No) Explain 6. A low current ratio generally indicates a lack of short-term liquidity. In general, such a firm will be required to pay (higher / lower) interest rates when borrowing money. Introduction Page 7