Posted by : Anonymous Wednesday, 24 October 2012


Ratio analysis
Learning Objective:
To understand the key decisive factor in [COLOR=#0000FF !important]working capital management[/COLOR] with the help of [COLOR=#0000FF !important]liquidity ratios[/COLOR].
Learning Outcome:
After going through this GDB, the student will be able to recognize the importance of working capital management.
The Case:
Eco Tyre Ltd. (ETL) - incorporated in year 2003 and entered into [COLOR=#0000FF !important]automobile tyre[/COLOR] manufacturing [COLOR=#0000FF !important]business by[/COLOR]introducing a [COLOR=#0000FF !important]new tire[/COLOR] [COLOR=#0000FF !important]manufacturing technology[/COLOR]. Over the years, ETL has been recognized as a tyre market leader. But, now a day, ETL is facing hard time due ineffective control of its working capital items.

Following data has been developed from its comparative balance sheets:

Ratio
FY 2010
FY 2011
Current Ratio
0.60 Times
0.79 Times
Quick Ratio
0.45 Times
0.61 Times
Return on Asset
9.7%
12.5%
Inventory Turnover
28 Times
15 Times
Avg. Collection Period
13 Days
24 Days
Short-term Debt
4 million
4 million
Total Asset Turnover Ratio
2 Times
5 Times
Credit Sales to Cash Sales Ratio
0.45 Times
0.67 Times
Required:
Being a financial analyst, do you think the [COLOR=#0000FF !important]liquidity[/COLOR] of a company is satisfactory?

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