Manage Budget and Financial Plans

Running Head: MANAGE BUDGET AND FINANCIAL PLANS
MANAGE BUDGET AND FINANCIAL PLANS
Name of the Student
Name of the University
Author Note

1MANAGE BUDGET AND FINANCIAL PLANS
Table of Contents
Analysis of Ratios of ABC Company........................................................................................2
Working Capital Ratio...........................................................................................................2
Accounts Receivables Collection Period Ratio......................................................................2
Debt Ratio..............................................................................................................................3
Reference and Bibliography.......................................................................................................4

2MANAGE BUDGET AND FINANCIAL PLANS
Analysis of Ratios of ABC Company
Working Capital Ratio
Working capital is that money, which is helpful for supporting the operations of short-
term that is calculated by the difference between the current assets and the current liabilities.
Moreover, working capital is defined as the measure of the liquidity that helps in revealing
whether the business is able for paying its obligations. It is calculated by dividing the current
assets by the current liabilities. Working capital ratio is very crucial for the creditors as it
helps them to know about the liquidity position of the company (Adam 2014). The working
capital ratio of the ABC company is 2.81 that means that the company is considered for
representing the good short-term liquidity. It is because the working capital ratio that is more
than 2 that represents that the company is able for paying its liabilities of short terms.
However, if the company can increase the ratio of working capital ratio by 3 then it would
match its performance with that of the industry whose average rate is 3. Therefore, the
company has the scope for the improvement (Aktas, Croci and Petmezas 2015).
Current Assets $146,000
Current Liabilities $52,000
Result 2.81
Workingcapital Ratio
Accounts Receivables Collection Period Ratio
The ratio of the accounts receivables collection per6iod helps in comparing the
outstanding receivables of the business to their total sales. This comparison facilitates the
evaluation of the time taken by the customers for paying to its seller. The average receivables
collection period ratio of the ABC company is 78.29 that means that it is not good for the
company. It means that the company is locking more funds in the accounts receivables and
hence, the funds cannot be used by the company for the other purposes. The high accounts
receivables collection period also increases the risk of the payment default by the customers