NAME: AYESHA TANZEEN ALI
H.T NO. 09L51E0013
TOPIC: LIQUIDITY ANALYSIS

A SYNOPSIS ON LIQUIDITY
ANALYSIS

INTRODUCTION:
Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realising amounts from current, floating or circulating assets. The current assets should either be liquid or nearly liquid. These should be convertible into cash for paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with current liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easily met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations.

NEEDS:
1. To study where the company have enough current assets in order to pay off its current liabilities. 2. Liquidity ratios are necessary as they are required by banks when evaluating a loan application. If you take a loan, the lender may require you to mailtain a certain minimum liquidity ratios as a part of loan agreement. 3. To study the liquidity position of a company.

OBJECTIVES:
1. To sudy the overall liquidity position of a company.
2. To make a comparitive study in regard to one financial year with another. 3. To study the trend of the change in position ( i.e whether the trend is upward, downward or static) 4. To study the ratios and their influence on operating cycle. 5. To study the comparison of related components like current assets with current liability.

IMPORTANCE:
In general, the greater the coverage of liquid...

...LIQUIDITYLiquidityratios are used to determine a company’s ability to meet its short-term debt obligations. Investors often take a close look at liquidityratios when performing fundamental analysis on a firm. Since a company that is consistently having trouble meeting its short-term debt is at a higher risk of bankruptcy, liquidityratios are a good measure of whether a company will be able to comfortably continue as a going concern.
Working Capital
Working capital is the amount by which the value of a company's current assets exceeds its current liabilities. Also called net working capital. Sometimes the term "working capital" is used as synonym for "current assets" but more frequently as "net working capital", i.e. the amount of current assets that is in excess of current liabilities. Working capital is frequently used to measure a firm's ability to meet current obligations. It measures how much in liquid assets a company has available to build its business.
Working capital is a common measure of a company's liquidity, efficiency, and overall health.
Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between an entity's short-term assets (inventories, accounts receivable, cash) and its short-term liabilities.
Working capital (net working capital)...

...000 |
Cumulative Cash Balance | 69.600 | 77.800 | 101.200 |
Repayment | 5.400 | 2.800 | 2600 |
Cumulative Loan Balance | 5.400 | 2.600 | 0 |
Ending Cash Balance | $75.000 | $75.000 | $98.600 |
Problem 25 / Page 89
Profitability Ratios | Johns Corp | Smith Corp |
Profit Margin | 7.4% | 5.25% |
Return On Assets | 18.5% | 12% |
Return on Equity | 29% | 34% |
Assets Utilization Ratios | | |
Receivable Turnover | 15.6 | 14.29 |
Average Collection Period | 23 T | 25 T |
Inventory Turnover | 25 | 13.3 |
Fixed Assets Turnover | 3.57 | 4 |
Total Assets Turnover | 2.5 | 2.3 |
LiquidityRatios | | |
Current Ratio | 0.83 | 0.65 |
Quick Ratio | 1.0 | 1.5 |
Debt Utilization Ratios | | |
Debt To Total Assets | 36% | 65% |
interest Earned | 24 | 6 |
Debt to Equity | 0.56 | 1.86 |
In analyzing the Profitability Ratios, we are able to note that john’s Corp shows higher profit margin than Smith by 2.10% which means good cost control, it measures of how many percent if a dollar earned, that the johns Corp get to keep as a profit. And its return on assets is higher by 6.5% and that indicates how many dollars of Johns earnings result from each dollar of assets the company controls. Return on Assets ratio gives an idea of how efficient management is at using its assets to generate profit.
Smith Corporation...

...LiquidityRatio Analysis
What It Measures
Liquidityratios are a set of ratios or figures that measure a company’s ability to pay off its short-term debt
obligations. This is done by measuring a company’s liquid assets (including those that might easily be
converted into cash) against its short-term liabilities.
There are a number of different liquidityratios, which each measure slightly different types of assets when
calculating the ratio. More conservative measures will exclude assets that need to be converted into cash.
Why It Is Important
In general, the greater the coverage of liquid assets to short-term liabilities, the more likely it is that a
business will be able to pay debts as they become due while still funding ongoing operations. On the other
hand, a company with a low liquidityratio might have difficulty meeting obligations while funding vital ongoing
business operations.
Liquidityratios are sometimes requested by banks when they are evaluating a loan application. If you take
out a loan, the lender may require you to maintain a certain minimum liquidityratio, as part of the loan
agreement. For that reason, steps to improve your liquidityratios are sometimes necessary.
How It Works in Practice
There are three...

...well-tested ratios out there make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify of the desert hotel company's strengths and weaknesses, evaluate its financial position, and understand the risks you may be taking.
As with any other form of analysis, comparative ratio techniques are not definitive. Numerous off the balance sheet and income statement factors can play a role in the success or failure of a company. This discussion contains descriptions and examples of the eight major types of ratios used in financial analysis: Profitability, Liquidity, short-term liquidity and Long-Term Analysis
Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial stability and management efficiency for the business. Although, ratios report generally show the professional way, of the desert lodge accommodation of beds and breakfast boutique hotel in the desert of Kuwait.
There are several considerations it must be aware of when comparing ratios from one financial period to another.
Short-term Liquidity
Short-term liquidity is the ability of the company to meet its short-term financial commitments. Short-term liquidityratios measure the...

...2.0 FINANCIAL RATIOS
2 LiquidityRatiosLiquidityratios measure a business' capacity to pay its debts as they come due. It also measures the cooperative’s ability to meet short-term obligations. Liquidity refers to the solvency of the firm’s overall financial position – the ease with which it can pay its bills. Because a common precursor to financial distress and bankruptcy is low or declining liquidity, these ratios can provide early signs of cash flow problems and impending business failure. The two basic measures of liquidity are the current ratio and the quick (acid test) ratio (Gitman, 2009).
1. Current ratios
The current ratio is current assets divided by current liabilities. The current ratio measures the firm’s ability to convene its short-term obligations. However, this ratio does not consider the degree of liquidity of each component of current assets. In the other words, if current assets of a cooperative were mainly cash, they would be much more liquid than if comprised of mainly inventory (“Using Financial Ratio Analysis,”1995).
Basically, the higher the current ratio, the more liquid is considered to be. If the ratio is less than industry average,...

...corporation that cut a hole in its factory’s wall to sell its fresh doughnuts directly to the customers. Krispy Kreme is a vertically intergrated company with three business units which are company store operations, franchise operations and supply chain operation. They produce doughnuts in a cost effective manner because of the using of an accelerated approach. Thus, Krispy Kreme has a high capacity of production because each factory stores could produce 4000 dozen to 10000 dozen of doughnuts in a single day. In addition, Kripsy Kreme also differentiated itself with the others by offering customers an experience to see the production of doughnuts.
3.1.2 Weaknesses
Krispy Kreme has the following weaknesses which is the low inventory turnover ratio. If not attended to quickly the firms supply line will continue to cost more money and reduce future profits. Next, the financial condition of Krispy Kreme is better compared to its competitors but does have some areas that need improvement. Krispy Kreme’s young management is showing that they want to be alert and have employed an almost zero tolerance policy regarding debt. Poor management or financial practices hurt reputation and stock prices of this company. Limited amount of “healthy” menu selections, limited “non-breakfast” menu items
3.1.3 Opportunities
International expansion gives better returns to company. Krispy Kreme can grab the chance to expand its business and enter into new markets like Asia...

...Ltd
Date: 4 October 2012
Liquidityratio:
It’s focus on the solvency of the business and includes two ratio-
1. Current ratio
2. Quick assets ratio
If the liquidity level of a company is high then it means that the company has or can generate enough cash to meet its short term requirements for cash- it can easily pay its bills on time. On the other hand if the liquidity level is low then the company has difficulty in generating enough cash to pay its bills.
1. Current ratio:
The aim of current ratio is to perform a company’s ability to meet its short term financial debts out of its current assets and is calculated as follows-
current ratio=current assetscurrent liabilities
Different type of business requires different current ratio. As an example-a manufacturing business required a high ratio because it has to hold inventories of finished goods, raw materials and work in progress and normally they sell goods on credit which giving rise to trade receivables. So an ideal current ratio usually considered as 2:1.
For CFT Ltd current ratio in 2012 is 1.28 times and in 2011 it was 1.09 times (see appendix).in 2012 inventories increase by 4500 which is 1.42 times more than 2011 while trade receivables decrease by 62%.
2. Quick assets ratio:
It’s also...

...Ratio Analysis
Ratio analysis is basically used to understanding the financial health of a business entity. With the help of ratios we can easily calculate from current year performance of the companies and are then compared to previous years. Ratio analysis conducts a quantitative analysis of information in a company’s financial statements. These Ratios are most commonly used in banking sector can be divided into five main categories
LiquidityRatios
Leverage Ratios
Profitability Ratios
Activity Ratios
Market Ratios
A) LiquidityRatiosLiquidityRatios are used to determine a company's ability to meet its short terms obligations.
These include;
1) Current Ratio
2) Acid Test Ratio
3) Working capital
Current Ratio
What Does Current Ratio Mean?
A liquidityratio that measures a company's ability to pay short-term obligations. Also known as "liquidityratio", "cash asset ratio" and "cash ratio".
OR
It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the...