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Current ratio and liquidity

September 30 (in thousands)
2007 2006

Current assets
Cash and short-term deposits $2,574 $1,021
Accounts receivable 2,347 1,575
Inventories 1,201 1,010
Other current assets 322 192
Total current assets $6,444 $3,798

Current liabilities $5,303 $4,008

Instructions
(a) Calculate the current ratio for Unique Boutique for 2007 and 2006.
(b) Suppose that at the end of 2007, the Unique Boutique used $1.5 million cash to pay off $1.5 million of accounts payable. How would its current ratio change?
(c) At September 30, the Unique Boutique has an undrawn operating line of credit of $12.5 million. Would this affect any assessment that you might make of the Unique Boutique's short-term liquidity? Explain.

Solution Preview

Unique Boutique balance sheet
September 30 (in thousands)
2007 2006
Current assets
Cash and short-term deposits $2,574 $1,021
Accounts receivable 2,347 1,575
Inventories 1,201 1,010
Other current assets 322 192
Total current assets $6,444 ...

Solution Summary

Response provides steps to compute current ratio and liquidity

$2.19