Calculate Current Assets from Current Ratio and Net Working Capital
What is the formula to calculate the amount of current assets from current ratio and net working capital?
Given the current ratio of 4:1 and net working capital of Rs.30,000, find the amount of current assets.
Answer:
The amount of current assets can be calculated using the formula:
Current Assets = Net Working Capital x (Current Ratio / (Current Ratio + 1))
Substitute the given values: Current Assets = Rs.30,000 x (4 / (4 + 1)) = Rs.24,000
The current ratio is provided as 4:1, which indicates the relationship between current assets and current liabilities. To determine the amount of current assets, the net working capital is divided by the current ratio.
In this scenario, the net working capital is Rs.30,000, and the current ratio is 4:1. By applying the formula, the current assets amount to Rs.24,000.
Understanding how to calculate current assets from the current ratio and net working capital is essential for financial analysis and decision-making.