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Explain differences among working capital and current ratio

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Reference no: EM131521500

Question: 1. Current liabilities affect a company's liquidity. What is liquidity, and how do we evaluate it?

2. Explain the differences among working capital, the current ratio, and the acid-test ratio.

3. How would the following transactions affect the current ratio and the acid-test ratio?

(a) Purchase of inventory with cash; and

(b) sale of inventory for more than its cost. Assume that prior to these transactions the current ratio and acid-test ratio are both less than one.

Reference no: EM131521500

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