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Finance & Accounting
Pages 8 (2008 words)
Contents Liquidity ratios 2 Current ratio 2 Quick ratio 2 Leverage against KPI 3 Solvency ratio 3 Debt to equity ratio 4 Solvency against KPI 5 Working capital management 5 Working capital turnover 5 Networking capital ratio 5 Working capital management against KPI 6 Profitability ratios 6 Gross profit ratio 6 Return on capital employed (ROCE) 6 Profitability against KPI 7 Asset efficiency ratios 8 Asset efficiency against KPI 9 Uses of KPIs in assessing organization performance 9 Advantages and limitations of the analysis techniques 9 Liquidity ratios Current ratio Current ratio = current assets/ current liabilities Current ratio is the simplest measure of a company’s liquidity.
The management of the company may want to contemplate a change of strategy, for example by reducing its current liabilities, to avoid landing into financial problems. The ratio has declined from 0.74 in 2011 to 0.73 in 2012, which could be attributable to leaner working capital cycle or deteriorating liquidity position (Bodie, Alex, and Alan, 2004; Damodaran, 2002). 2011 2012 Industry Current Asset 1,641.7 1,460.1 Current Liabilities 2,210.2 2,005.4 0.74 0.73 1.44 Quick ratio Quick ratio = [cash and equivalents + short-term investments + accounts receivable]/current liabilities 2011 2012 Industry Cash and equivalents 470.2 196.1 Short-term investments 18.4 67.0 Accounts receivable 250.3 253.0 Total Current liabilities 2,210.2 2,005.4 Quick ratio 0.334 0.257 0.82 Unlike the current ratio, this ratio is more conservative because it does not include inventory from the current assets. ...
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