Use the following information to calculate Kiersten current assets: sales = $12 million, capital intensity ratio = 4 times, debt ratio = 45 percent, and fixed asset turnover ratio = 2.5 times.

Answer 1

Current Assets = sum of all liquid assets = Cash and Cash Equivalents + Accounts Receivable + Inventory + Marketable Securities + Prepaid Expenses + Other Liquid Assets

We can also calculate Current Assets by subtracting Fixed Assets from Total Assets:

Current Assets = Total Assets - Fixed Assets

From Capital Intensity Ratio, we can find Total Assets:

Capital Intensity Ratio = 4 = Total Assets / Annual Sales

4 = Total Assets / 12,000,000

Total Assets = 4 * 12,000,000 = 48,000,000

From Fixed Asset Turnover Ratio, we can find Fixed Assets:

Fixed Asset Turnover Ratio = 2.5 = Annual Sales / Avg. Fixed Assets

2.5 = 12,000,000 / Avg. Fixed Assets

Avg. Fixed Assets = 12,000,000 / 2.5 = 4,800,000

Thus: Current Assets = Total Assets - Fixed Assets = 48,000,000 - 4,800,000 = 43,200,000

Current Assets = $43,200,000.