In analysing the financial statements of Regis Ltd, the following ratios were calculated. Current ratio Quick ratio Receivables turnover Inventory turnover Payables turnover Gross profit margin Return on equity 2023 1.1:1 0.5:1 30 days 3 times 60 days 10% 15% 2022 1.3:1 0.7:1 45 days 4 times 45 days 7% 12% Required: (a) Evaluate the entity's liquidity using the above information. (b) A condition of obtaining a long-term loan from the Scots Bank is that the current ratio should not fall below 1.25:1. Examine the effect on this condition if Regis Ltd considers two courses of action: either to borrow cash with a long-term loan of $90,000 from the bank; or by negotiating with creditors to settle $90,000 of payables with a long-term Note Payable. Assuming the current assets and current liabilities are 660,000 and 600,000 respectively, what course of action would you recommend and why?

In analysing the financial statements of Regis Ltd, the following ratios were calculated. Current ratio Quick ratio Receivables turnover Inventory turnover Payables turnover Gross profit margin Return on equity 2023 1.1:1 0.5:1 30 days 3 times 60 days 10% 15% 2022 1.3:1 0.7:1 45 days 4 times 45 days 7% 12% Required: (a) Evaluate the entity's liquidity using the above information. (b) A condition of obtaining a long-term loan from the Scots Bank is that the current ratio should not fall below 1.25:1. Examine the effect on this condition if Regis Ltd considers two courses of action: either to borrow cash with a long-term loan of $90,000 from the bank; or by negotiating with creditors to settle $90,000 of payables with a long-term Note Payable. Assuming the current assets and current liabilities are 660,000 and 600,000 respectively, what course of action would you recommend and why?

Century 21 Accounting General Journal

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section17.4: Analyzing Financial Statements Using Financial Ratios

Problem 1WT

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