Professional Documents
Culture Documents
(figures in Lakhs)
-Inventories
31401.28 46680.37 49764.70 46467.03
-Sundry Debtors
-Other Current
Assets
1386.50 2275.53 2421.75 18147.29
- Loans and
Advances
Gross Working
Capital (a) 60772.53 86300.93 96462.51 110458.44
Current Liabilities
and Provision
-Current Liabilities
30000
25000
20000
15000
10000
5000
0
2015-16 2016-17 2017-18
Net Working Capital
2015-16
2016-17
2017-18
Advances:
1767.94 20391.85
-Sundry Debtors
1386.50 2275.53
- Cash and Bank Balances
281.50 171.18
-Other Current Assets
10535.31 16782
- Loans and Advances
Sundry Debtors
49057 62473
Provision
9086 11962
Advances:
20391.85 23497.97
-Sundry Debtors
2275.53 2421.75
- Cash and Bank Balances
171.18 159.79
-Other Current Assets
16782 20618
Advances:
49764.70 46467.03
-Inventories
23497.97 23762.92
-Stock
2421.75 18147.29
The short term creditors of a company such as suppliers of goods Of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm
to meet its obligations in time. The short term obligations of a firm can be met in time
only when it is having sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of fixed assets the
liquid position of the Firm must be strong. But a very high degree of liquidity of the
firm being tied up in current assets. Therefore, it is important proper balance in regard
to the liquidity of the firm. Two types Of ratios can be calculated for measuring short-
term financial position or short-term solvency position of the firm.
• Liquidity ratios.
• Current assets movements 'ratios,
LIQUIDITY RATIOS: -
Liquidity refers to the ability of a Firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about
liquidity. These should be convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off' the current
liabilities then the liquidity position is satisfactory. On the other hand, if the current
liabilities cannot be met out of the current assets then the liquidity position is had. To
measure the liquidity of a lit in, the following ratios can be calculated:
1. CURRENT RATIO
2. QUICK RA RATIO
CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure or general liquidity and
its most widely used to make the analysis of short-term financial position or liquidity
of a firm. It is defined as the relation between current assets and current liabilities. Thus,
CURRENT ASSET
CURRENT LIABILITIES
Current Assets include cash, marketable securities, bills receivable, sundry debtors, inventories
and work-in-progress. Current Liabilities include outstanding expenses, bills payable, dividend
payable etc. A relative high current ratio is an indication that the firm is liquid and has the
ability to pay its current obligation in time. On the other hand a low current ratio represents
that the liquidity position of the firm is not good and the firm shall not be able to pay its current
liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the
liabilities is considered to be satisfactory
Liabilities
Interpretation:
A current ratio is an indication that the company's current asset is more than its
current liabilities. The ideal current ratio is 2:1. Company's current ratio is less
than the ideal ratio. This shows that the company may face problems in paying
off its liabilities.
Quick Ratio:
Quick ratio is more rigorous test of liquidity than current ratio. Quick ratio may
be defined as the relationship between quick/liquid asset and current or liquid
liabilities. An asset is said to be liquid if it can be converted into cash with short
period without loss of value. It measures the firms capacity to pay off current
obligations immediately.
Marketable Securities
Cash in hand and Cash at bank
Debtors
A high ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time and on the other hand a low quick ratio represents that the
firm's liquidity position is not good. As a rule of thumb ratio of 1:1 is considered
satisfactory. It is generally thought that if quick assets are equal to current
liabilities then the concern may be able to meet its short term obligations
However, a firm having high quick ratio may not have a satisfactory liquidity
position if it has low paying debtors. On the other hand, a firm having a low
liquidity position if it has fast moving inventories.
(Amount in Lakhs)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015-16 2016-17 2017-18
INTERPRETATION:
A quick ratio is an indication that the firm is liquid and has the ability to meet
its current liabilities in time. The ideal ratio is 1:1. Company's quick ratio is
less than the ideal ratio. This shows that the company might have some liquidity
problems.
CURRENT ASSETS MOVEMENT RATIOS
Funds are invested in various assets in business to make sales and earn profits
The efficiency with which assets are managed directly affects the volume of sales. The better
the management of assets, large is the amount of sales and profits Current assets movement
ratio measure the efficiency with which a firm manages its resources. These ratios are called
turnover ratios because they indicate the speed with which assets are converted or turned over
into sales Depending upon the purpose, a number of turnover ratios can be calculated. These
are
The current ratio and quick ratio give misleading results if current assets include
high amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current assets,
it is important to calculate the turnover ratio.
70000
60000
50000
40000
30000
20000
10000
0
2015-16 2016-17 2017-18
Interpretation:-