Question

CCC - Balance sheets 31 December 2018, 2017 assets 2018 2017 Fixed assets, net 600,000 500,000 Inventory 70,000 50,000 Accounts receivable, net 100,000 150,000 Cash 30,000 50,000 Total current assets € 200,000 € 250,000 Total assets € 800,000 € 750,000 Equity and liabilities 2018 2017 Share capital 300,000 200,000 Retained earnings 80,000 100,000 Total equity € 380,000 € 300,000 Payable bonds 200,000 250,000 Accounts payable 150,000 120,000 Income taxes payable 70,000 80,000 Total current liabilities € 220,000 € 200,000 Total liabilities € 420,000 € 450,000 Total equity and liabilities € 800,000 € 750,000 Required ( show formulas and calculations ): 1) Calculate the following liquidity ratios in year 2018 and year 2017 : Current assets to Total assets; Cash to Current liabilities ratio; Current assets to Current liabilities ratio; Acid-test ratio. 2) Based on the ratios calculated, comment on the liquidity performance of CCC Company

Answer 1

Particulars	2018	2017
Fixed Assets	600,000	500,000
Inventory	70,000	50,000
Accounts receivable	100,000	1,50,000
Cash	30000	50000
Total Current Assets	200,000	250,000
Total Assets	8,00,000	7,50,000
Total Current Liabilities	220000	200000
Ratioes
Current Assets to Total Assets	0.25	0.33
Cash to Current Liabilities ratio	0.14	0.25
Current Assets to Current Liability Ratio	0.91	1.25
Acid Test Ratio	0.59	1
(Cash+rece+short term)/current liabil)

Current Asset ratio is not attractive and its a bad sign of lower liquidity ratio, hence company should focus on the ways of increasing the ratio.

The minimum acid-test ratio a company should have. Firms with a ratio of less than 1 are short on liquid assets to pay their current debt obligations or bills and should, therefore, be treated with caution.