EX 4-22 Working capital and current ratio

The following data (in thousands) were taken from recent financial statements of Starbucks
Corporation:
                                               Sept. 27, 2009           Sept. 28, 2008
Current assets                             $2,035,800                $1,748,000
Current liabilities                         1,581,000                   2,189,700

a. Compute the working capital and the current ratio as of September 27, 2009, and
September 28, 2008. 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.
                                            Sept. 27, 2009         Sept. 28, 2008
 Current assets ...............         $2,035,800               $1,748,000
 Current liabilities ...........         1,581,000                 2,189,700
 Working capital..............         $ 454,800               $ (441,700)
 Current ratio...................          1.29                            0.80
                                   ($2,035,800/$1,581,000) ($1,748,000/$2,189,700)

b. Although Starbucks Corporation had negative (deficit) working capital of
$441,700 for 2008, it generated positive working capital of $454,800 for 2009.
The current ratio of 0.80 improved to 1.29 in 2009. The improving working
capital and current ratio for 2009 indicate that short-term creditors should not
be concerned about receiving payment from Starbucks.