Analysis of Liquidity Ratios for Reitmans Canada Limited - Accounting

This report provides an analysis of the liquidity ratios of Reitmans Canada Limited, focusing on the current ratio, quick ratio, working capital ratio, and cash ratio. The analysis examines the trends of these ratios over time, offering insights into the company's ability to meet its short-term financial obligations. The report references the 2018 annual report of Reitmans Canada Limited, highlighting the company's performance in sales, gross profit, and store optimization strategies. The findings indicate that while Reitmans Canada Limited maintains a consistent working capital position, its quick and cash ratios have decreased over the years, suggesting a potential challenge in meeting short-term liabilities with immediate liquid assets. The report concludes by summarizing the implications of these liquidity trends for the company's overall financial health and provides references to support the analysis. This report is a valuable resource for students studying financial analysis and accounting, providing a practical application of liquidity ratio analysis.

Running Head: ACCOUNTING
ACCOUNTING
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Table of Contents
Analysis of Liquidity Ratio........................................................................................................2
Reference....................................................................................................................................4

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Analysis of Liquidity Ratio
The Liquidity ratio is the ratio that uses various ratios for determining ability of the
organization for paying bills on time. It is one of the important tools for creditors as well as
lenders because they gain certain idea regarding financial conditions of the company before
granting credit to them. Following are the analysis of some of the liquidity ratio calculated of
Reitmans Canada Limited:
 Current Ratio- This is the most common ratio used by the users for analyzing
company’s liquidity position. It signifies the company’s ability for meeting their
liabilities of short-term. The current ratio trend of Reitmans Canada Limited shows
that position of company for meeting short-term liabilities is almost consistent over
years. Moreover, it is having good position of liquidity (reitmanscanadalimited.,
2019).
 Quick Ratio- The quick ratio is known to be more conservative than current ratio. It
is the liquidity ratio, which measures ability of company for paying its current
liabilities when it becomes owed, with the quick assets only. The quick ratio trend of
Reitmans Canada Limited shows that over the year company’s position for meeting
short-term liabilities with its most quick assets have been decreased over years and in
the current scenario it is not capable to making payment of liabilities with quick assets
(Khaldun & Muda, 2014).
 Working Capital Ratio- This ratio is the measure of the liquidity that reveals
whether the business has the ability for paying its obligations. The working capital
ratio trend of Reitmans Canada Limited shows that over years Company’s working
capital position is consistent and good enough for meeting its liabilities of the short-
term (Ehiedu, 2014).

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 Cash Ratio- The cash ratio helps to measure total liquidity available to company. It
considers only cash and cash equivalents components of company. It measures ability
of company cash and cash equivalents, which can be converted easily into short-term
obligations. The cash ratio trend of Reitmans Canada Limited shows that over the
year position of company to meet its obligations of short-term have decreased over
years. Although, it can meet its obligations of short-term liabilities with cash (Al
Nimer, Warrad & Al Omari, 2015).

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Reference
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.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies:
The financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), 81-90.
Khaldun, K. I., & Muda, I. (2014). THE INFLUENCE OF PROFITABILITY AND
LIQUIDITY RATIOS ON THE GROWTH OF PROFIT OF MANUFACTURING
COMPANIES A STUDY OF FOOD AND BEVERAGES SECTOR COMPANIES
LISTED ON INDONESIA STOCK EXCHANGE (PERIOD 2010-2012).
reitmanscanadalimited (2019). Retrieved 5 October 2019, from
http://content.reitmanscanadalimited.com/pdf/report_2018_annualreport_1_en_82_07
052018160951.pdf