Current Ratio = Current Assets/Current Liabilities 2020 2019 13,896,794,073/13,864,318,289 = 1.00:1 12,703,448,506/13,706,759,724 = 0.93:1 This means that the business has P1.00 current assets to pay for a peso of a current liability in 2020 against P0.93 current assets to pay for a peso of current liability in 2019. The rule of thumb is 2:1. Both periods show illiquidity with 2019 showing it is very illiquid. Quick Ratio or Acid Test Ratio = Quick Assets / Current Liabilities 2020 2019 8,811,687,849/13,864,318,289 = 0.64:1 8,055,634,208/13,706,759,724 = 0.59:1 This means that the business has 0.64 quick assets to pay for a peso of current liability in 2020. Both periods show illiquidity, more so in 2019. If the company is going to see this for growth, new market, then it is wise to build up current assets or working capital. But if not, then the idle funds must be moved and used for profitable ventures or else profitability and return on the owner's investment will be adversely affected.

Current Ratio = Current Assets/Current Liabilities 2020 2019 13,896,794,073/13,864,318,289 = 1.00:1 12,703,448,506/13,706,759,724 = 0.93:1 This means that the business has P1.00 current assets to pay for a peso of a current liability in 2020 against P0.93 current assets to pay for a peso of current liability in 2019. The rule of thumb is 2:1. Both periods show illiquidity with 2019 showing it is very illiquid. Quick Ratio or Acid Test Ratio = Quick Assets / Current Liabilities 2020 2019 8,811,687,849/13,864,318,289 = 0.64:1 8,055,634,208/13,706,759,724 = 0.59:1 This means that the business has 0.64 quick assets to pay for a peso of current liability in 2020. Both periods show illiquidity, more so in 2019. If the company is going to see this for growth, new market, then it is wise to build up current assets or working capital. But if not, then the idle funds must be moved and used for profitable ventures or else profitability and return on the owner's investment will be adversely affected.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter3: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 19SP

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