Compute Dunn’s working capital and current ratio at December 31, 2009. What do these ratios tell us about Dunn’s liquidity?

Dunn sporting goods sells athletic clothing and footwear

Dunn’s working capital = Current Assets – Current Liabilities

At December 31, 2009:

Current Assets = $4,000

Current Liabilities = $1,500

Therefore, Dunn’s Working Capital = 4,000 – 1,500 = 2,500.

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term and long-term debts. It is calculated by dividing the total current assets by the total current liabilities. At December 31st 2009:

Current Ratio = 4,000/1,500  = 2.67.

These ratios tell us that Dunn had sufficient liquidity in order to cover its short term obligations as of December 31st 2009. The working capital ratio demonstrates that Dunn had more than enough resources available (current assets) to cover their liabilities even after taking into account their expenses. Additionally the current ratio shows that they have more than double the amount of liquid assets needed in order to be able to meet all their financial commitments if necessary. Overall these two ratios demonstrate that Dunn was in a healthy financial position at this time which likely contributed to their continued success & growth going forward.