Liquidity Ratios - Business Finance - ثاني ثانوي

CR <1 1 CR 2 CR>2 Firm can't meet its obligations with current assets Firm has sufficient assets to meet current liabilities Firm has ample cash, may want to redeploy more efficiently FIGURE 3.12 Interpreting the Curient Ratio You Try It Hasan's office supplies company has current assets of SAR 1,000 It has current liabilities of SR 650. Calculate its current potio and interpret your result. Can the company meet its obligations? Do you think it has enough of a cash buffer to withstand bad accounts receivables or other shortfalls? Why do you think analysts use more than one type of ratio to analyze financial statements? % ୫୧୫୫ % % % % 109 ୪୧

Cricket acid) Current assets excluding inventory divided by current liabilities:um indicator of liquidity 3.6b The Quick Ratio The quick ratio or acid test calculates the ratio of all current assets- except inventory-divided by current liabilities. This ratio focuses on those assets that may be used quickly if needed. The quick ratio is expressed as: Current assets - Inventory Quick ratio = Current liabilities For Daana's we can calculate the quick ratio as: SAR 2,942,000-SAR 1,235,000 SAR 2,075,000 = 0.82 A low quick ratio indicates that the firm may have difficulty meeting its obligations as they come due, although it does not indicate that the firm will fail to pay. The quick ratio simply indicates how well the current liabilities are covered by cash and assets that may be converted into cash relatively quickly. In effect, the quick ratio considers that not all current assets are equally liquid and is a more stringent measure of liquidity than the current ratio. p1usiness Finance N You Try It Ahmed's computing store has the following: Cash SAR 2,000 Cash equivalents (government bonds) SAR 500 Accounts receivable SAR 1,000 Inventory SAR 600 Current liabilities SAR 3,250 田 90 Calculate both the current ratio and quick ratio. What differences do these values suggest? Which of the two methods would you recommend, and why?