Calculate the net working capital and current ratio

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Reference no: EM133227852

Question: Good Earth Poultry Company had sales of 4.4 million last year and current asset and liabilities as follows (in thousand pesos)

Cash 60,000 Accounts Payable 160,000 Receivable 120,000 Bank Loan 260,000 Inventory 900,000 Total 420,000 Total 1,080,000

Good Earth Poultry's current assets and accounts payable changed in proportion to sales because of the nature of the poultry groing business. The company had an existing credit line with its local bank for a maximum amount of P300,000.

Required:

a. Calculate the net working capital and current ratio of Good Earth Poultry.

b. If sales increase to 6 million, what will happen to the current ratio? Ignore any possible effects of profits.

c. If sales fall to 3 million, what will happen to the current ratio? Ignore any possible effects of profits.

d. Suppose that sales increased by 20 percent and Good Earth Poultry wanted to keep its current ratio to present level, how much additional bank loan can it afford? Is this amount within the existing credit limit? How was the increase in current assets financed?

e. Suppose that sales increased by 15 percent and Good Earth Poultry wanted to finance all the increase in current assets bank loan, how much additional bank loan would the company need? What will happen to the current ratio

Reference no: EM133227852

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