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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.
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