Calculate liquidity and working capital ratios from the accounts of a manufacturer of products for the construction industry, and comment on the ratios.
【参考答案及解析】
As a manufacturing group serving the construction industry, the company would be expected to have a comparatively lengthy receivables turnover period, because of the relatively poor cash flow in the construction industry. It is clear that the company compensates for this by ensuring that they do not pay for raw materials and other costs before they have sold their inventories of finished goods (hence the similarity of receivables and payables turnover periods). The company's current ratio is a little lower than average but its quick ratio is better than average and only slightly lower than the current ratio. This suggests that inventory levels are strictly controlled, which is reinforced by the low inventory turnover period. It would seem that working capital is tightly managed, to avoid the poor liquidity which could be caused by a high receivables turnover period and comparatively high payables.
As a manufacturing group serving the construction industry, the company would be expected to have a comparatively lengthy receivables turnover period, because of the relatively poor cash flow in the construction industry. It is clear that the company compensates for this by ensuring that they do not pay for raw materials and other costs before they have sold their inventories of finished goods (hence the similarity of receivables and payables turnover periods). The company's current ratio is a little lower than average but its quick ratio is better than average and only slightly lower than the current ratio. This suggests that inventory levels are strictly controlled, which is reinforced by the low inventory turnover period. It would seem that working capital is tightly managed, to avoid the poor liquidity which could be caused by a high receivables turnover period and comparatively high payables.