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The following data (in thousands) were taken from recent financial statements of Under Armour, Inc.: a. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. Round to two decimal places. b. What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?

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Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 4, Problem 21E
Textbook Problem
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The following data (in thousands) were taken from recent financial statements of Under Armour, Inc.:

Chapter 4, Problem 21E, The following data (in thousands) were taken from recent financial statements of Under Armour, Inc.:

  1. a. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. Round to two decimal places.
  2. b. What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?

(a)

To determine

Compute working capital and current ratio as of December 31 for Year 2 and Year 1.

Explanation of Solution

Ratio analysis: It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

  1. 1. Current ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. The following formula is used to calculate current ratio.
  2. 2. Working capital: Total current assets minus total current liabilities are the working capital of a company.

Compute working capital.

DetailsYear 2 ($)Year 1 ($)
Current assets689,663558,850
Less: Current liabilities(183,607)(149,147)
Working capital$506,056$409,703

Table (1)

Calculate the current ratio for Year 2 and Year 1...

(b)

To determine

Explain the ability of a company to meet its financial obligations.

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