## Liquidity ratios - numerical questions

#### Question 1

Examine the following table of data, and then answer the question that follows.

Extract from the accounts of Sherston Logistics plc (Units \$k)

Year 2007 2008 2009 2010 2011
Stock 100 120 140 160 160
Creditors 60 70 80 80 90
Cash 100 70 60 80 100
Overdrafts 60 80 100 110 120
Debtors 100 130 100 80 70
Short-term loans 40 40 30 40 60

For each year, calculate and comment on the firm's acid test ratio.

#### Question 2

Frank Wright runs a small bakery. He is concerned with the liquidity position of his firm as he has heard that liquidity problems are one of the most frequent explanations for business failure. The following data is available:

\$
Stock 14500
Debtors 8409
Bank 3200
Creditors 9310

#### Required

(a) Calculate the current ratio and liquidity (acid test) ratio based on the above data.
(b) Give a brief evaluation of the liquidity position of Frank Wright's bakery

#### Question 3

Hi-Sounds, a small audio equipment retailer, has just completed the second year of trading. Profits are up, but the manager is slightly concerned. She feels that the firm could face liquidity problems in the near future. The data for this claim is as follows:

As at 31 December: 2010 2011
\$ \$
Stock 14500 7568
Debtors 6662 9871
Bank 3200
Creditors 9310 7845
Bank overdraft 2489

#### Required

(a) Calculate the current ratio and liquidity ratio based on the above data.
(b) Should the manager be concerned with the liquidity position? Give a balanced argument.