Reference no: EM133126064
Question - Working Capital is the excess of the current assets of a business over its current liabilities: Working capital=current assets - current liabilities
Positive working capital implies that a business is able to pay its current liabilities and is solvent.
The current ratio is another means of expressing the relationship between current assets and current liabilities, computed by dividing Current Assets by Current Liabilities: Current Ratio = Current Assets/Current Liabilities
Historically, companies had considered a current ratio of 2.00:1 to be adequate. In recent years, companies have considered a current ratio in the range of "1.10:1 to 1.30:1" to be adequate by improving management of their current assets and liabilities. A current ratio that is less than 1.00:1 is considered to be dangerous as it indicates that the company may have difficulties paying its bills when they become due.
The following data (in millions) are taken from financial statements for General Motors:
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as of 12/31/2016
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as of 12/31/2015
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Current assets:
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$76,203
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$78,007
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Current Liabilities:
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$85,181
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$71,466
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A) Compute the working capital as of December 31, 2016 and December 31, 2015.
B) Compute the current ratio as of December 31, 2016 and December 31, 2015.
C) What conclusions concerning General Motors' ability to meet its financial obligations can you draw from parts (a) and (b)?