Current ratio of a firm is 1.5 and quick ration is 1.2. If there are total inventories of Rs.6 lakh, what is the net working capital of the firm (in Rs. Lakh)? 

Solution

Net Working Capital = Current Assets- Current Liabilities  Quick Ratio= (Current Assets- Inventories) / Current Liabilities =1.2 From this - Current Assets = 1.2 x Current Liabilities + 6 Current Ratio= Current Assets/ Current Liabilities =1.5 From this - Current Assets = 1.5 x Current liabilities  Therefore,  1.5 x Current liabilities = 1.2 x Current Liabilities + 5 0.3 Current Liabilities = 6 Current Liabilities = Rs.20 Lakh Current Assets = 1.5 x 20 = Rs. 30 lakh   Net Working Capital = Current Assets- Current Liabilities = 30-20 = Rs.10 lakh