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Accounting Ratios

Current ratio
This is a simple measure that estimates whether the business can pay debts due within one year out of the current assets. A ratio of less than one is often a cause for concern, particularly if it continues for any length of time. Current Year Current Ratio Company 1.9 Industry 2.5 Company 1 Past Year Industry 2.3

At 31 December 20X2 current assets were 1.9 times the value of current liabilities. That ratio was more than the 1.0 time at the end of 20X1, suggesting a slight improvement in the current ratio. At 31 December 20x2 current assets of industry were 2.5 times the value of current liabilities. The ratio was more than 2.3 times at the end of 20x1, suggesting a slight improvement in the current ratio. So, the company is going well in current year with respect to industry as compared to last year.

Quick Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. A quick ratio of 1.00 means that the most liquid assets of a business are equal to its total debts and the business will just manage to repay all its debts by using its cash, marketable securities, and accounts receivable. On the opposite side, a quick ratio of less than one indicates that a business would not be able to repay all its debts by using its most liquid assets. Current Year Quick Ratio Company 0.7 Industry 1 Company 0.4 Past Year Industry 0.9

At 31 December 20X2 company quick ratio was 0.7 times the value as of industry value of 1. That ratio was less than the 0.4 time at the end of 20X1 as compare to industry value of 0.9, suggesting an improvement is required for the company to pay off its debt on time. So, the company has to check the management of inventory turnover period as this may be a concern for company having quick ratio less than one.

Receivables turnover
The receivable turnover ratio calculates the number of times in an operating cycle (normally one year) the company collects its receivable balance. Accounts receivable turnover measures the efficiency of a business in collecting its credit sales. Generally a high value of accounts receivable turnover is favorable and lower figure may indicate inefficiency in collecting outstanding sales. Current Year No Of Days Of Receivables Company 41 Industry 30.3 Company 45 Past Year Industry 27.4

At 31 December 20X2 company receivables turnover was 41days for company as compare to the industry of 30.3 days. That no of receivable days for company was 45days at the end of 20X1 as compare to industry of 27.4 days. Company receivables turnover are low if compare to last years company receivable period but if compared with industry the receivable turnover are high so too high collection period is usually bad, a very low collection period may not necessarily be good.

Inventory turnover
The inventory turnover ratio measures the number of times the company sells its inventory during the period. Current Year No Of Days Of Inventory Company 39 Industry 34 Company 44 Past Year Industry 32.5

At 31 December 20x2 company inventory turnover was 39days for company as compare to the industry of 34 days. That no of inventory days for company was 44days at the end of 20X1 as compare to industry value of 32.5 days. Company inventory turnover of 39days is in marked contrast to an industry turnover of 34days.This unfavorable comparison suggests that the company is less efficient in inventory management than is for industry, and that company holds excessive stocks. But the company has improved its current inventory management as compare to last year.

Payables turnover
It is an important activity ratio, and provides a measure of how effectively a business is managing its payables. The payables turnover ratio measures the number of times the company pays off all its creditors in one year. Accounts payable turnover is a measure of short-term liquidity. A higher value indicates that the business was able to repay its suppliers quickly. Thus higher value of accounts payable turnover is favorable. This ratio can be of great importance to suppliers since they are interested in getting paid early for their supplies. Current Year No Of Days Of Payables Company 31.3 Industry 36 Company 29.4 Past Year Industry 35.5

At 31 December 20X2 company payables turnover was 31.3days for company as compare to the industry of 36 days. That no of payables days for company was 29.4days at the end of 20X1 as compare to industry value of 35.5 days. This comparison gives us a clear idea of how well the company is managing its payables. As the current payable period is 31.3days as compare to last year 29.4 days if compare with company the value is good and company is managing there payables efficiently.