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

Dunn sports goods is a retailer of athletic footwear and clothing

Dunn’s working capital = Current Assets – Current Liabilities

As of December 31, 2009

Current Assets = $4,000.

Current Liabilities equal $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. The current ratio is calculated by multiplying the current assets and liabilities. As of December 31, 2009:

Current Ratio = 4,000/1,500  = 2.67.

As of December 31, 2009, these ratios show that Dunn was able to meet its short-term obligations due as a result of having sufficient liquid assets. Dunn’s working capital shows they have more than sufficient resources (current assets) available to cover liabilities, even after accounting for expenses. The current ratio also shows they have twice as much liquid assets to cover all of their obligations if needed. 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.