Analysis and Interpretation of British Accounts

1
Analysis and Interpretation of British Accounts

• Short-term Liquidity Measures

2
Liquidity

• The amount of time required to convert an asset
  into cashor pay liability.1

Encyclopaedia of Banking Finance
Munn/Garcia/Woelfel Bankers Publishing Company
9th Edition Illinois 1991
3
Level of Liquidity
Level of Liquidity
Cash at Bank and in Hand
Investments
Debtors
Stocks
Fixed Assets
Asset
4
Current Ratio
Balance Sheet
Long Investments
Owners Fund
Long-term Liabilities
Stocks

Current Liabilities
Cash
5
Quick Ratio
Balance Sheet
Long Investments
Owners Fund
Long-term Liabilities
Stocks
Current Liabilities
Cash
6
Working Capital to Sales Ratio
Balance Sheet
Profit Loss Account
Long investments
Owners Fund
Sales 1.250.000 PBIT
850.000 Interest 136.000 PBT
714.000 Tax 264.180 PAT
449.820 Ordinary 180.820 RE
269.000
Long-term Liabilities
Current Assets
Current Liabilities
7
Working Capital Days
Goods are received on day 0
Goods are sold on day 44
Payment is received on day 85
inventory 44 days
accounts receivable 41 days
accounts payable 26 days
Goods are received on day 0
Goods are received on day 0
Time gap cash-out/cash-in
The funding requirement on the company is 59 days
8
Working Capital Required
An increase in Sales produces the need for
additional working capital!