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    sidhuwellcome's Avatar
    sidhuwellcome Posts: 1, Reputation: 1
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    #1

    Sep 5, 2009, 11:05 PM
    Current ratio
    Current asset 600, current lab 1500. How much we can borrow fm bank with out reducing the current ratio bellow 1:5
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Sep 6, 2009, 05:55 AM
    With your pre-borrowing CR standing at 2 : 5, I assume* that none of the proceeds "x" of the new debt will be deployed into current assets (e.g. inventory, cash in bank). So start with

    , and solve for x.

    *Can you see why that assumption is necessary? If the new debt proceeds were placed into current assets, it would increase the CR from its present level.
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