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The Gap Inc. operates over 3,000 specialty retail stores under such brand names as GAP, Old Navy, and banana republic. The following asset and liability data (in millions) were adapted from recent financial statements. 1. Compute working capital for Years 2 and 1.2. Compute the current ratio for Years 2 and 1. Round to one decimal place. 3. Compute the

The Gap Inc. operates over 3,000 specialty retail stores under such brand names as GAP, Old Navy, and banana republic. The following asset and liability data (in millions) were adapted from recent financial statements.

The Gap Inc. operates over 3,000 specialty retail stores under

1. Compute working capital for Years 2 and 1.
2. Compute the current ratio for Years 2 and 1. Round to one decimal place.
3. Compute the quick ratio for Years 2 and 1. Round to one decimal place.
4. Analyze and assess any changes in liquidity for Years 2 and1.

Transcribed Image Text:

Year 2 Year 1 Current assets Cash Accounts receivable Inventory Prepaid and other current assets S1,885 297 1,615 512 $4,309 $2,128 $1,661 205 1,620 440 $3,926 $2,095 Total current assets Total current liabilities

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1. Year 2: $2,181 ($4,309 - $2,128) Year 1: $1,831 (…View the full answer

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Related Book For answer-question
Survey of Accounting

Survey of Accounting

7th edition

Authors: Carl S. Warren

ISBN: 978-1285183480

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The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.

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