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Cash Ratio
The cash ratio is the difference between the networking capital and the need for
networking capital and it is commonly used to measure the companys ability to meet its
short-term obligations. We can notice that, although there is a steady increase/decrease
in the NWC/NNWC respectively, the cash ratio in the first 2 years is negative because of
the NNWC being a lot greater than the NWC. Which also shows that the spontaneous
financing by our suppliers is indeed limited and that our liquidity buffer is not enough to
carry on such a load as to finance the whole business cycle. In the year 2011
particularly we can see that even though our trade cyclic means overcomes our trade
cyclic needs resulting in a negative NNWC, our cash ratio is still positive due to the
combination with our positive NWC. Finally in the last 2 years, from 2012-2013, you can
see that our company has yet again managed to get itself back to a positive cash ratio
indicating that the company does not need additional financing.
Current Ratio
Since all the companies obviously have different sizes depending on their operational
actions, it is not always easy to compare them to each other solely based on their
figures. That is why certain ratios have been set up for the purpose of ruling out this size
effect, thus current ratio has been considered as a liquidity buffer which is at a
companys disposal to finance its adjusted current assets. Now taking into account the
current ratios of our company from 2009-2013 you can see that, even though there are
minor fluctuations along the years, our companys financial health is rather stable as the
current ratios from 2009-2013 are all >1. Compared to the figures in our sector, it can be
said that our company is doing a great job in keeping themselves on track and in par
with the others as they constantly keep their figures intact with the average current ratio
of the sector throughout the years.
Quick Ratio
Sometimes, despite having a large sum of adjusted current assets in your possession, it
is not always that evident to liquidate them all as certain conditions do apply. Conditions
as such may range from having to wait for the right moment to be able to convert a
stock as to get the maximum amount of revenue possible, to not being able to convert
any assets at all due to the maturity being greater than a year. The quick ratio takes
these limitations into consideration by excluding certain accounts. So if you have a
careful look at our ratios, the first impression would be that our company is in a very
critical position as all of them are <1 from the year 2009-2013. Even though the situation
is indeed alarming, it does not come off as a big surprise as our cash ratio in the first
three years also gives off a negative value and as they turn positive in the last 2 years
you can see the same effect in the quick ratio as it slowly rises.
When a customer makes a purchase or anything as such the company does not receive
the money immediately, there is usually a period of waiting time that may vary from days
to months. The settlement period for trade debtors allows us to estimate how long that
waiting time takes. From the year 2010-2012 we can notice that the amount of trade
debtors steadily increased, which could be considered as one of the main reasons for
the progressive growth in the average settlement period for trade debtors. This increase
in the average settlement period does not usually work in the companys favor but as we
can from depict from the values in our sector, they are comparatively the same.