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BUS FP3061 McAndrewVanessa Assessment5 Attempt1 part 2

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BUS-FP3061 Assessment 5, Part 2 Template
BUS-FP3061 Fundamentals of Accounting
Ratio
Year 1
Year 2
Current ratio
3.12:1
2.96:1
Quick ratio
1.34:1
1.02:1
Receivables turnover
9.7 times
10.2 times
Inventory turnover
2.4 times
2.3 times
Profit margin
11.4%
12.6%
Asset turnover
1.21 times
1.22 times
Return on assets
13.7%
15.4%
Return on equity
28.5%
29.3%
Price-earnings ratio
10.4 times
12.4 times
Debt ratio
50.2%
45.3%
Times interest earned
9.6 times
13.0 times
CURRENT RATIO
Year 1 Year 2
3.12:1 2.96:1
These figures gives insight into the liquidity of the firm, that is, its ability to pay of short-term
liabilities with its current assets for year 1 and year 2. It is a measure of liquidity because short-
term liabilities are usually due within a year. It helps investors and creditors understand how
easily a company will be able to pay off its current liabilities. This ratio expresses a firm’s
current debt in terms of current assets.

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Analysis of the ratios showed a decrease of the firm’s liquidity from year 1 to year 2. The
company’s ability to pay off its current liabilities when they become due has reduced. A higher
current ratio is more favorable than a lower current ration because it shows that the company can
more easily make current debt payments. 2.96:1 is still above the required minimum of one
meaning the company can confidently pay off its current dues. It can be improved by adding
more current assets as compared to the current liabilities.
QUICK RATIO
Year 1 Year 2
1.34:1 1.02:1
Like the current ratio, it also measures the liquidity of company by looking at the ability of a
company paying its current liabilities when they come due with only quick assets. These current
assets can be converted to cash easily. This means inventory is excluded in its calculations. If a
company has enough quick assets to cover its current liabilities, the company will be able to pay
off its obligations without having to sell off any long-term asset. A higher quick ratio greater
than 1 is advantageous because there are more quick assets than current liabilities .Analysis
shows that the quick ratio increased from 1.34:1 to 1.02:1 meaning the liquidity has reduced in
year 2. This is not a good sign for investors and creditors. The company should add more quick
assets holdings to improve its ability to pay off current liabilities when they become due.
RECEIVABLES TURNOVER
YEAR 1 YEAR 2
9.7 times 10.2 times
Receivable turnover is an efficiency or activity ratio measuring how many times a company
turned its accounts receivable into cash in a particular year. A higher ratio is more favorable as it
shows the ability of the company’s efficiency in collecting its receivables. Receivables turnover
over the two years has increased from 9.7 times to 10.2 times indicating an improved quality of
credit sales and receivables. This means that the company’s credit sales are more likely to be
collected in year 2 compared to year 1.

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BUS-FP3061 Assessment 5, Part 2 Template BUS-FP3061 – Fundamentals of Accounting Ratio Year 1 Year 2 Current ratio 3.12:1 2.96:1 Quick ratio 1.34:1 1.02:1 Receivables turnover 9.7 times 10.2 times Inventory turnover 2.4 times 2.3 times Profit margin 11.4% 12.6% Asset turnover 1.21 times 1.22 times Return on assets 13.7% 15.4% Return on equity 28.5% 29.3% Price-earnings ratio 10.4 times 12.4 times Debt ratio 50.2% 45.3% Times interest earned 9.6 times 13.0 times CURRENT RATIO Year 1 Year 2 3.12:1 2.96:1 These figures gives insight into the liquidity of the firm, that is, its ability to pay of short-term liabilities with its current assets for year 1 and year 2. It is a measure of liquidity because shortterm liabilities are usually due within a year. It helps investors and creditors understand how easily a company will be able to pay off its current liabilities. This ratio expresses a firm’s current debt in terms of current assets. Capella Proprietary and Confidential ShortDoc_Internal.doc Last updated: 10/3/2021 1:41 AM 1 Title Analysis of the ratios showed a decrease of the firm’s liquidity from year 1 to year 2. The company’s ability to pay off its current liabilities when they become due has reduced. A higher current ratio is more favorable than a lower current ration because it shows that the company can more easily make current debt payments. 2.96:1 is still above the required minimum of one meaning the company can conf ...
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