Problem - Sedgewick Boutique reported the following financial data for 2014 and 2013.
| SEDGEWICK BOUTIQUE Balance Sheet (partial) September 30 (in thousands) |
| Current assets |
2014 |
2013 |
| Cash and short-term deposits |
$2,574 |
$1,021 |
| Accounts receivable |
2,147 |
1,575 |
| Inventories |
1,201 |
1,010 |
| Other current assets |
322 |
192 |
| Total current assets |
$6,244 |
$3,798 |
| Current liabilities |
$4,503 |
$2,619 |
Instructions-
(a) Calculate the current ratio for Sedgewick Boutique for 2014 and 2013.
(b) Suppose that at the end of 2014, Sedgewick 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, Sedgewick Boutique has an undrawn operating line of credit of $12.5 million. Would this affect any assessment that you might make of Sedgewick Boutique's short-term liquidity? Explain.