Given:
total current assets : 1,000,000
total current liabilities : 400,000
purchase 100,000 worth of inventory on account.
Current ratio = total current assets / total current liabilities
current ratio = 1,000,000 / 400,000 = 2.50
Current assets: 1,000,000 + 100,000(inventory) = 1,100,000
Current liabilities: 400,000 + 100,000(accounts payable) = 500,000
Current ratio = 1,100,000 / 500,000 = 2.20
From 2.50 current ratio, the company will have a current ratio of 2.20 after it purchases inventory on account.
Current ratio tells us the ability of the company to pay off short term liabilities using the company's assets.
