Accounting. Financial Stability

Topics: Finance, Debt, Liability Pages: 3 (659 words) Published: August 25, 2012
Financial Stability

Short term:


Current ratio: The Current ratio is calculated by dividing the current assets by the current liabilities. The logic behind this is that the current assets should all be convertible into cash within one year, and the current liabilities are what you have to pay within one year. (Anthony, R, 2008, pg 179). The current ratios for JB Hi Fi Ltd are as follows. In 2009 the ratio was 1.31 and decreased to 1.25. This result occurred because they may not have had enough assets to be converted into cash to pay off their liabilities. As for Harvey Norman Holdings Ltd, the rates increased from 1.11 in 2009 to 1.62 in 2010. This could be because Harvey Norman Holdings Ltd has invested in higher amounts of stock.


Quick Ratio: The Quick ratio is identical to the current ratio except that stock is not included in the current assets, on the basis that stock can be hard to sell. (Anthony, R, 2008, pg 180). JB Hi Fi Ltd had a quick ratio of 0.31 in 2009 and increased to 0.33 in 2010 as for Harvey Norman, they have a higher rate of 0.99 in 2009 and 1.43 in 2010. This could be a result of better payments from debtors and they are able to pay off their short term debts to creditors faster.


Long term


Debt asset ratio: The debt to asset ratio measures the percentage total funds provided by creditors and is represented by total liabilities/ total assets. (Jackling, Raar, Wines, Mc Dowall, pg 659). JB Hi Fi Ltd had a debt to assets ratio of 65.3% in 2009 and decreased to 58.9% in 2010 as did Harvey Norman Holdings Ltd. They also had a decrease from the ratio of 43.67% in 2009 to 41.7% in 2010. This information provided can be a result of not utilising business cash profit, which means the loans and accounts payable are not being paid fast enough which creates slower turnover.


Debt Equity Ratio: The debt to total funding ratio shows you a glance how much of a business is funded by debt and, by deduction, how much...
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