Analysis of Current and Quick Ratios for Financing Enterprises

This assignment analyzes the financial performance of two companies, Inghams Group Limited and Bega Cheese Limited, by examining their current and quick ratios. The analysis covers the years 2016/17 and 2017/18, calculating and comparing these key liquidity ratios to assess the companies' ability to meet short-term obligations. The assignment highlights the importance of these ratios in evaluating a company's financial health, discussing how changes in these ratios over time can indicate potential financial challenges or strengths. The analysis includes the calculation of the current and quick ratios for both companies, and a discussion of the implications of the calculated values, with references to relevant academic literature. The appendix provides detailed calculations for each ratio, offering a clear understanding of the methodologies applied. The document offers valuable insights into financial analysis techniques, showcasing how to interpret financial data and make informed judgments about a company's financial position. The assignment emphasizes the importance of understanding liquidity ratios for effective financial management and investment decision-making.

Running Head: FINANCING ENTERPRISES 1
FINANCING ENTERPRISES

FINANCING ENTERPRISES 2
Current Ratio/ Quick ratio
The current ratio is the ratio that explains how well the company is able to pay back the current
obligations with the help of the current assets. The quick ratio on the other hand is the ratio
which is more interested in realizing the cash from the assets and setting of the current liabilities
on time. This ratio falls under the category of liquidity position and hence, two companies have
been analyzed namely Inghams Group Limited and Bega Cheese Limited.
Inghams Group
Limited
Current ratio 06/17 06/18 06/17 06/18
Current Assets 698300 754600 1.95 1.78
Current
Liabilities 357900 424900
Quick ratio
Quick Assets 425900 490800 1.19 1.16
Current
Liabilities 357900 424900
In this scenario, Inghams Group limited has a current ratio of 1.95 times and the same reduced to
1.78 times over the period of a year. Secondly the quick ratio also declined in comparison to the
previous year, where the assets have been increased and the proportion of the liabilities is even
more. Ideally the current ratio shall be 2:1, while the companies have lower ratio than the
stipulated benchmark. The quick ratio of Inghams Limited has decreased from 1.19 times to 1.16
times. This implies the company is not able to realize the cash in a faster manner (Al Nimer,
Warrad & Al Omari, 2015).
Bega Cheese
Limited
Current ratio 06/17 06/18 06/17 06/18
Current Assets 818472 469031 3.07 1.69

FINANCING ENTERPRISES 3
Current Liabilities 266584 278191
Quick ratio
Quick Assets 650574 236951 2.44 0.85
Current Liabilities 266584 278191
Bega Cheese Limited is the company which is involved in the dairy products and while
performing the financial analysis it can be ascertained that the liquidity position of the company
have declined from 2.44 times to 0.85 times. The current ratio is more than the benchmark and
this indicates that the company is able to utilize the cash in the best manner, yet not able to keep
a consistency. The quick ratio on the other hand of Bega Cheese Limited have been declined due
to the assets decreased from $650574 to $236951 as only those assets are entertained that are
readily available for conversion into cash (Uechi, et al 2015).
Hence, from the overall analysis it can be understood that obsolete assets shall be sold off to
invest the cash in the potential areas.

FINANCING ENTERPRISES 4
References
Al Nimer, M., Warrad, L., & Al Omari, R. (2015). The impact of liquidity on Jordanian banks
profitability through return on assets. European Journal of Business and Management, 7(7), 229-
232.
Uechi, L., Akutsu, T., Stanley, H. E., Marcus, A. J., & Kenett, D. Y. (2015). Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
488-509.

FINANCING ENTERPRISES 5
Appendix 1
Inghams Group Limited
2016/17
Current Ratio= Current Assets/ Current liabilities = 698300/357900 = 1.95 times
Quick Ratio = Current Assets- Inventory / Current Liabilities = 425900/357900 = 1.19 times
Bega Cheese Limited
Current Ratio= Current Assets/ Current liabilities 818472/266584 = 3.07 times
Quick Ratio = Current Assets- Inventory / Current Liabilities = 650574/266584 = 2.44 times
2017/18
Inghams Group Limited
Current Ratio= Current Assets/ Current liabilities = 754600/424900 = 1.78 times
Quick Ratio = Current Assets- Inventory / Current Liabilities = 490800/424900 = 1.16 times
Bega Cheese Limited
Current Ratio= Current Assets/ Current liabilities = 469031/278191 = 1.69 times
Quick Ratio = Current Assets- Inventory / Current Liabilities = 236951/278191 = 0.85 times