Current ratio Current assets

Corporate
Accounting

ACCOUNTING 1
Question 1
A.
Financial Analysis
2018 2019
Industry
Averages
Liquidity Ratio
Current ratio Current assets 10990 11674
Current liabilities 10378 11572
1.06 1.01 1.7
Quick ratio Quick assets 5537 5961
Current liabilities 10378 11572
0.53 0.52 1
Debt (to assets) ratio Total Liabilities 21323 25187
Total Assets 27266 31634
78.20% 79.62% 60%
Leverage Ratio Total Assets 27266 31634
Total Equity 5943 6447
4.59 4.91 2.5

ACCOUNTING 2
B.
Liquidity Ratio
It has been determined that current ratio of the firm has been decreases from the previous year’s
such as 1.06 to 1.01 in 2018 to 2019. Industry Current Ratio is 1.7 which is high as compare to
the company ratio. The main reason of decreasing the current ratio such as current liabilities has
been increases with the increasing amount of current assets. The quick ratio of the company is
also less as compare to industry average as it is 0.52 and industry average is 1 which depicts that
liquidity position of the firm is not that strong. The poor liquidity position states that the
company is not able to pay its all short term liabilities by using the current assets (Williams and
Dobelman, 2017).
Financial Stability
In order to evaluate the financial stability, leverage and debt ratio has been determined.
According to leverage ratio evaluation, it has been found that the company debt ratio is high as
compare to industry average which such as it is 78.20 and 79.62% in the year 2018 and 2019
respectively and industry average is 60%. This ratio states that the firm has the capacity to pay
the short term or long term obligations by using the assets as the amount of assets is high as
compare to its total liabilities. Leverage Ratio of the industry average is also less as compare to
the company (Zainudin, and Hashim, 2016).
C.
As per the above evaluation, it has been found that the firm financial performance is moderate
due to which the chance of risk is also moderate. Being an investor, I would like to lend money

ACCOUNTING 3
to the company as it has high amount of assets that can be used to pay all liabilities so that the
chances of loss has been decreases.
Answer 2)
Three proposals have been introduced to the board of the company Dunning Ltd in order to
improve the profitability levels of the company.
Option 1
Description Rate
(Amount in
$)
Revenue (a) 150 3000000
Less: Variable costs (b):
Variable manufacturing costs 50 1000000
Variable selling and administrative costs 30 600000
Contribution (a) - (b) 1400000
Less: Fixed Costs
Advertising costs 125000
Fixed manufacturing costs 400000
Fixed selling and administrative costs 300000
Profits 575000
Option 2
Description Rate
(Amount in
$)