Business, 21.02.2020 05:57 ethanw7327

The following data (in thousands) were taken from recent financial statements of Under Armour, Inc. December 31 Year 2 Year 1 Current assets Current liabilities a. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. Enter working capital dollars. Round "current ratio answers to two decimal places $1,498,763 $1,549,399 478,810 421,627 Year 2 Year 1 Working capital 1,549,399 x 1,498,763 X Current ratio 421,627 x 478,810 | Х b. What conclusions concerning the company's abillity to meet its fi Under Armour's working capital decreased X by 421,627 X during Year 2. The current ratio decreas Because year 2's current ratio indicates a weak liquidity position, the short-term creditors should not be receiving payment from Under Armour inanchaf obligations can you draw from part (a)7 0 more Check My Work uses remaning DOLL

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Answer from: ineedhelp2285

Year 2.

Current Assets =$1,498,763

Current Liabilities = $1,549,399

Working Capital = Current Assets - Current Liabilities = (50,636)

Current Ratio = Current Assets/Current Liabilities = 0.97:1

Year 1

Current Assets = 478,810

Current Liabilities = 421,627

Working Capital = Current Assets - Current Liabilities = (57,188)

Current Ratio = Current Assets/Current Liabilities = 1.14:1

Explanation:

The following data (in thousands) were taken from recent financial statements of Under Armour, Inc. December 31 Year 2 Year 1 Current assets Current liabilities a. Compute the working capital and the current ratio as of December 31, Year 2 and Year

1. Enter working capital dollars.

2. Round "current ratio answers to two decimal places

Year 2.

Current Assets =$1,498,763

Current Liabilities = $1,549,399

Working Capital = Current Assets - Current Liabilities = (50,636)

Current Ratio = Current Assets/Current Liabilities = 0.97:1

Year 1

Current Assets = 478,810

Current Liabilities = 421,627

Working Capital = Current Assets - Current Liabilities = (57,188)

Current Ratio = Current Assets/Current Liabilities = 1.14:1

b. What conclusions concerning the company's ability to meet its financial obligations, although Armour's working capital decreased to 421,627 during Year 2.

The current ratio communicates the liquidity position of the company. Under Armour has done better in year 1 when its current ratio was higher than 1, than in year 2 when its current ratio became less than 1.

The decline in the current ratio in year 2 indicates a weaker liquidity position, which implies that the company cannot settle its short-term creditors and other operational obligations from their current assets

This situation in Under Armour can be described as overtrading.

Overtrading is a term used to describe such situations when companies engage in more business (credit supplies of inventory) than can be supported by the resources available (Current assets).

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