Reflecting on Wildhorse Co. Current Ratio Calculation

What is the current ratio of Wildhorse Co. based on the provided data?

A. 2.46:1

B. 1.75:1

C. 3.10:1

Answer:

The current ratio of Wildhorse Co. is 2.46:1.

Reflecting on the current ratio calculation of Wildhorse Co., it is evident that the company has a healthy liquidity position. The current ratio is a vital financial metric that assesses a company's ability to cover its short-term liabilities with its current assets.

In the case of Wildhorse Co., the current ratio is calculated by dividing the total current assets by the total current liabilities. The current assets consist of cash, accounts receivable, inventory, and prepaid insurance, which amount to $577,400. On the other hand, the current liabilities include accounts payable and salaries and wages payable, totaling $234,500.

By dividing the total current assets by the total current liabilities, we arrive at a current ratio of 2.46. This indicates that Wildhorse Co. has more than enough current assets to meet its short-term obligations, showcasing its financial stability and solvency.

It is important for companies to maintain a healthy current ratio, as it ensures that they can easily cover their short-term debts and operating expenses. Wildhorse Co.'s current ratio of 2.46 reflects positively on its financial health and ability to manage its current financial obligations effectively.