Calculation of liquidity ratios current ratio and acid-test, Financial Accounting

 

Calculation of Liquidity ratios Current Ratio and Acid-Test Ratio -

         
   

2008

2009

2010

A

Inventory

1388168

2030972

2651760

B

Current Assets

1784275

2353271

2905145

C

Current Liabilities

992683

1340291

1743763

D

Administrative Expenses

1338918

1797197

2319148

E

Selling Expenses

89749

123639

165962

F

Operational Expenses

1428667

1920836

2485110

         
         
 

Current Ratio (B / C)

1.80

1.76

1.67

         
 

Acid - Test Ratio [(B-A) / C] =

0.40

0.24

0.15

         
 

Defensive Interval period / ratio (in days) [B / (F / 360)]

450

441

421

         
 

Assumption - We have assumed the operational expenses to include "Administrative expenses" and "Selling Expenses" and a year to be of 360 days.

 

As shown by the ratios above all liquidity ratios i.e. Current Ratio, Acid Test ratio and Defensive Interval period are showing a declining trend from 2008 to 2010. This might be due to the global recession during that period. None of the ratios are increasing or improving after 2008 till 2010.

The liquidity position of the firm is not good as the best measure of liquidity i.e. the quick ratio is also declining continuously in 2009 and 2010 vis-à-vis the previous years.

Posted Date: 7/26/2012 5:56:06 AM | Location : United States







Related Discussions:- Calculation of liquidity ratios current ratio and acid-test, Assignment Help, Ask Question on Calculation of liquidity ratios current ratio and acid-test, Get Answer, Expert's Help, Calculation of liquidity ratios current ratio and acid-test Discussions

Write discussion on Calculation of liquidity ratios current ratio and acid-test
Your posts are moderated
Related Questions
Steps in preparing the consolidated balance sheet Step 1 : Prepare the 3 important accounts i.e. cost of control to determine goodwill Group retained profits Mino

Transaction Entry Information: May 1 Owener H.Hadi invested $40,000 in the business

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

WyseFinance maintains a non-current asset register for recording information for non-current assets for a business. The business is registered for VAT. The following is a purcha

Q. What are Junk Bonds? Junk Bonds - DEBT SECURITIES issued by companies with higher than normal credit risk. Considered ‘non-investment grade' bonds, these SECURITIES ordinari

Describe Following questions:- Q.1 What organizations are responsible for governing financial reporting? What is the role of each organization? How have the roles changed in the

The following items represent liabilities on a firm's balance sheet: a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed. b. An a

The enhancing qualitative characteristic of understand ability means that information should be understood by a those who are experts int eh interpretation of financial information

DUTIES OF TRUSTEES 1) Not to profit from the trust : A trustee may not receive remuneration except: By order of the court, if the trust is very onerous or the services of the

I need help with my homework