Liquidity Financial Ratio Review Exercise Essay

1284 Words 6 Pages
Liquidity Financial Ratio Review Exercise
Understanding the meaning of financial ratios is imperative to different stakeholders both within and outside of a company. Management reviews different ratios to measure how effective the strategies used to run the business are within a given time period. Money Managers and other types of investors use ratios to determine investment strategies in different types of companies. The use of the ratios helps give a consistent look at different types of businesses whether large or small and determine profitability and return on equity. The purpose of this paper is examine liquidity ratios as applied to three companies and gain understanding of how the ratios studied disclose liquidity positions.
…show more content…
The review of the ratios analysis shows Working Capital (current assets-current liabilities) to be a very positive $9,538M. The Current Ratio ( current assets / current liabilities) of 1.49:1 indicates that current liabilities can be covered with current assets. The Quick Ratio ((current assets – inventories) ÷ current liabilities) of 1.42:1 reveals that Dell can certainly cover their current obligations without selling inventory or pursuing short-term borrowing in order to raise cash. Management discussion of the liquidity position agrees with this analysis as stated, "We believe that we can generate cash flow from operations in excess of net income over the long term and can operate our cash conversion cycle at mid negative 30 days or better" (Dell Inc., Form 10K Annual Report, Management Discussion and Analysis of Financial Condition and Results of Operation, p. 47).

Genesco Inc.
Genesco Inc. is a manufacturer and retailer of different types of shoe wear. They are headquartered in Nashville, Tennessee with domestic and global operations. The review the company Annual Report as filed on Form 10K with the SEC shows the data for Working Capital, Current Ratio, and the Quick Ratio in the worksheet from Walther (Walther, Principles of Accounting.com, Chapter 4, worksheet I-04.07).


The level of Working Capital (Current…

More about Liquidity Financial Ratio Review Exercise Essay