BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
At the end of a recent year, The Gap Inc., reported total assets of $7, 610 million, current assets of $4, 315 million, total liabilities of $4, 706 million, current liabilities fo $2, 453 million, and stockholders’ equity of $2, 904 million. What is its current ratio and what does this suggest about the company?
A
the ratio of 1.62 suggests that the Gap has liquidity problems
B
the ratio of 1.76 suggests that the Gap has sufficient liquidity
C
the ratio of 1.62 suggest that the Gap has greater current assets than current liabilities
D
the ratio of 1.76 suggests that the Gap is not able to pay its short-term obligations with current assets
Explanation: 

Detailed explanation-1: -The asset turnover ratio is an indicator of the efficiency with which a company is deploying its assets. Gap asset turnover for the three months ending October 31, 2022 was 0.34.

Detailed explanation-2: -A balance sheet (also known as a statement of financial position) is a summary of all your business assets (what your business owns) and liabilities (what your business owes). At any point in time, it shows you how much money you would have left over if you sold all your assets and paid off all your debts.

Detailed explanation-3: -The return on total assets ratio is calculated by dividing a company’s earnings after tax by its total assets.

Detailed explanation-4: -A balance sheet is calculated by balancing a company’s assets with its liabilities and equity. The formula is: total assets = total liabilities + total equity. Total assets is calculated as the sum of all short-term, long-term, and other assets.

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