These ratios describe that how many current assets are required to fulfill the current liabilities.
By using the data from each company’s financial statement we find out the current ratio of both companies. As in company A there is a large amount of assets to fullfill the liabilities of the company more efficiently as compared to the company B, so the current ratio of company A is 1 and a current ratio of company B is 0.4, the same situation is in the case of quick ratio. Quick ratio of company A is 1.02 and of the company B is 0.2. Quick ratio specifically measures the liquidity so the result shows that company A is more liquid as compared to the company B. (“HITSTELEC: Financial reports”)
What do the accounts receivables turnover and inventory turnover of your company (Company (A)), compared with the other company, suggest about the company (A)’s ability to convert AR and Inventory accounts into cash?
We compared account receivable turnover between company A and B, we know that account receivable turnover show that how many times companies receive payments from debtors. As the result show company A has the turnover of 8.8 times and company B has the turnover of 10.7 times, so it is clearly shown that company B has a high turnover as compared to company A. As we know inventory turnover means the cost of goods sold on an inventory recovered at a specific time. Again the company B has a high inventory turnover as compared to company A.
Company A can convert account receivables into cash when it receives the debts from the debtors and this happen only when company issue debts on some specific terms and conditions or compensate the debtor that they can return their debt by their willingness. Company A can convert an inventory account into cash from the sale of inventory as possible as they can for this purpose it is necessary to reduce the cost of that inventory that every person can easily afford it. (“DU: