(a)
i) The liquidity of Sydney Pty Ltd is measured by two ratios: veritable and restless ratio. Current ratio measures the ability to cover short- barrier debts with current assets. This ratio increase from 2 to 3 between 2009 and 2010 screening an improvement in liquidity but falling exterior of the ideal range (1 to 2). This movement could indicate an increase in some types of current assets which were less liquid e.g. accounts receivable or inventory.
The quick ratio measures the ability to meet short term obligations with the most liquid assets excluding inventory and prepayments. This ratio also increased between 2009 and 2010 from 1 to 1.3 indicating an improvement in liquidity. Liquidity remained at heart the ideal range of 1 and 2.
The two ratios confirm that a lot of current assets are tied up in inventory which may come at a monetary value (e.g. storage costs or obsolescence).
(3 marks)
ii) The profitability of Sydney Pty Ltd is measured through the net profit margin ratio. This ratio increased by 3 percent between 2009 and 2010 showing a sharp improvement in profitability.
Without any nurture about earthy profit margin or other profitability ratios, it is ambitious to assess the reason for the change, perhaps there was an increase in revenues or a decrease in expenses.
(3marks)
iii)Two ratios utilize to measure the efficiency of the company are inventory overthrow and debtors turnover.
It took 40 days longer for the company in 2010 to contend its inventory compared to 2009 showing deterioration in efficiency. In accompaniment an increase in debtors turnover shows that it took on average 15 days longer for customers to pay in 2010 compared to 2009.
Without any information about industry averages it is difficult to estimate if the company was efficacious in managing its debtors and inventory.
The entity may have to review its debtors collection policy, creed terms offered to customers and its...If you want to get a full essay, entrap it on our website: Orderessay
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