Mark X Case Answers

Liquidity ratios measure the capability of a business to cover expenses and meet its current and long-term responsibility. These ratios are imperative in order to keep the business alive. Lending institutions are typically unwilling to loan money to a business that finds itself in a cash flow jam, because that is often a sign of poor management. The liquidity is measured with 3 different ratios; current ratio, turnover – of – cash ratio and debt- to equity ratio.

The above figure is the comparative balance sheet of Canadian Tire Corporation, Limited. for the year 2009 to 2010. In the assets section, though current assets decreased by 3.7%, the total assets decreased only by 1.2% because the net capital assets increased by 2.3%. The similar trend appeared in the liabilities section, too. The current liabilities decreased by 20.2% while the long-term liabilities increased by 1.9%. As a result, the total liabilities decreased by 9.4%. In the shareholders’ equity section, there was a 0.1% decrease in the common shares but 12.6% increase for the retained earnings which made the total shareholders’ equity

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

Liquidity ratios: Liquidity measures company’s ability for short-term obligations. The two important liquidity ratios are Current ratio and Quick ratio. The current ratio is estimated by dividing current assets by current liabilities. A Higher number indicates greater liquidity. Vanguard Group’s current ratio for 2007 is 1.66. The quick ratio is also known as the acid-test ratio. It excludes inventory which is the least liquid asset. The quick ratio is important for a company whose inventory cannot be easily liquidated otherwise the current ratio is preferred. Like the current ratio, higher number in quick ratio indicates better liquidity. Vanguard Group’s quick ratio is 0.966. Vanguard’s both current and

Liquidity ratios measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity

The quick ratio is a measure of how well a company can meet its short-term financial liabilities. Because inventories are generally the least liquid of an organisation assets a more precise assessment of liquidity may be obtained by excluding inventories from the numerator of the current ratio (Times, 2017, p. 148). See Table II, below with the quick ratio formula and calculations for Wesfarmers.

Liquidity ratios measure the ability of a firm to meet its short-term obligations. A company that is not able

Liquidity is strong in both years but liquidity does appear to be weak from year to year.

Liquidity In analyzing liquidity of the company, the current ratio is not very telling of a falling company. The company increased its ratio throughout the period of the income statement thus building upon its company assets and allowing for a 6-1 ratio of assets over its liabilities. This implies the company is still able to operate sufficiently even though it did not make its optimum current ratio of about 8-1. However, when one takes the inventory out of the equation with the quick ratio, the numbers show the true strength of short term liquidity. The numbers are still good, and do not indicate failure – but are

Projected quick ratios of 0.6/0.66 for 2002/2003 cause concern as well. From the wide gap between current and quick ratios, it can be interpreted that work in process and finished inventory represents a very critical amount of the total current asset. In addition, the inventory turnover is forecasted to decrease over the years. This implies more inventory piles up for the firm and can

The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity

The unaudited financial statements show that all financial ratios have made improvements. The CEO states, that this year shows a success with over $16 million in gains. However, disagreement lies on the subject of the use of the money and in what area it successfully accomplished objectives. It does

2. Liquidity ratios are used to measure the ability of the company to meet its obligations for the coming year. The main liquidity ratio is the current ratio, which is the current assets over current liabilities. The quick ratio excludes inventories from the current assets, and the cash ratio is simply the amount of cash divided by the current liabilities. These ratios are often benchmarked against industry norms and against past performance.

The quick ratio reflects on a company’s ability to meet its current liabilities without liquidating inventories that could require markdowns. It is a more stringent test of liquidity than the current ratio and may provide more insight into company liquidity in some cases. For Colgate-Palmolive, the quick ratio has declined from 0.73 in 2008 to 0.58 in 2010. While this does not necessarily mean a problem, a higher current ratio and quick ratio analysis will mean that the company will not have difficulty in meeting its short-term obligations from its operations and not by liquidating its assets.

Liquidity analysis: It measures the adequacy of a firm’s cash resources to meet its near-term cash obligations. The short-term lenders assess the ability of a firm to meet its current obligations. That ability depends on the cash resources available as of the balance sheet date and the cash to be generated through the operating cycle of the firm. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Under it following analysis is done: