Liquidity ratios - numerical questions
Examine the following table of data, and then answer the question that follows.
|Extract from the accounts of Sherston Logistics plc (Units $k)|
For each year, calculate and comment on the firm's acid test ratio.
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:
(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
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|
(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.