EX 4-21 Working capital and current ratio

The following data (in thousands) were taken from recent financial statements of Under
Armour, Inc.:
                                                             December 31
                                                        2008         2007
Current assets                               $396,423   $322,245
Current liabilities                           113,110      95,699

a. Compute the working capital and the current ratio as of December 31, 2008 and 2007.
Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations
can you draw from part (a)?

Answer:
a.                                              December 31
                                           2008                    2007
 Current assets ............... $396,423              $322,245
 Current liabilities ...........113,110                   95,699
 Working capital............. $283,313              $226,546
 Current ratio...................  3.50                       3.37
                              ($396,423/$113,110) ($322,245/$95,699)

b. Under Armour’s working capital increased by $56,767 ($283,313 – $226,546)
during 2008. The current ratio increased from 3.37 in 2007 to 3.50 in 2008. A
current ratio of 3.50 indicates a strong solvency position. Thus, short-term
creditors should not be concerned about receiving payment from Under Armour.