Accounting for Business

ACCOUNTING FOR BUSINESS
STUDENT ID:
[Pick the date]

PART A
a) 1) Current Ratio – This ratio pertains to short term liquidity. It hints at the company’s
capacity to entertain the current liabilities using the current assets available on the books
of the company.
2) Quick Ratio: This ratio pertains to short term liquidity. It hints at the company’s capacity
to entertain the current liabilities using the current liquid assets available on the books of the
company.
3) Accounts Receivable Turnover – This ratio pertains to operational efficiency. It hints at the
company’s ability to collect cash from the outstanding debtors i.e. those who were sold goods
on credit.
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4) Inventory Turnover – This ratio pertains to operational efficiency. It hints at the
company’s ability to produce sales based on the inventory available with the company.
b) Liquidity Ratios –Taking the above computations into consideration, it is apparent that on
one hand there is some improvement witnessed in quick ratio while on the other hand, a
sizable decline is witnessed in current ratio. Hence, the overall short term liquidity
position for the company in 2019 would be considered as inferior in comparison to the
position in 2018. A positive aspect of the company’s corresponding ratios in this regards is
that despite the fall, the existing ratios do not indicate any major issue with the short term
liquidity position. However, any further drop in the subsequent years may make the
company vulnerable to cash crunch (Arnold, 2015).
Efficiency ratios – In relation to these ratios, the key positive is the improvement that the
company has shown in these ratios over the one year period from 2018 to 2019 when the
turnover ratios have undergone sizable improvement. The drop in average collection
period and average inventory turnover period augers well for reduction in the overall cash
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