Liquidity ratio • Current ratio: • Quick ratio Current ratio=current assets/current liabilities Current ratio 2001 2000 A-Tech 1.16 0.95 Bi-Sci 2.25 2.17 Quick ratio=current assets –inventories/current liabilities Quick ratio 2001 2000 A-Tech 0.57 0.45 Bi-Sci 1 0.92 Interpretation: Current ratio is the ratio in which current assets divided by current liabilities. Bi-Sci Company has more liquidity as compared to A-tech Company. Activity ratio: Receivable turnover=credit sales/receivables Receivable turnover 2001 2000 A-Tech 31.7 45 Bi-Sci 30 30 Average collection period=365/receivable turnover Average collection period 2001 2000 A-Tech 11.5 8.11 Bi-Sci 12.2 12.2 Inventory turnover=CGS/inventory Inventory turnover 2001 2000 A-Tech 16.6 22.5 …show more content…
A-Tech Company has better effects on net profit and pay after taxes than Bi-Sci Company. Investment on A-Tech Company is decreasing more than the other company so in investment Bi-sci Company is better than the other company. In shareholders’ equity the performance of A-tech company is better because the return of equity is more than the Bi-Sci Company. Part b A-Tech is suitable for investors as it utilizes the shareholders equity efficiently in order to generate profit and increase the productivity levels. It takes high risk to gain high return. Part c Financial investors are used by potential investors are liquidity ratio, financial leverage and profitability ratio. Most common liquidity ratios include current ratio and quick ratio. This shows the company’s liabilities to pay off their short term debts. Investors prefer low current ratio because in this situation many companies required potential investors that grow their business. Quick ratio is also called acid ratio. It is similar to current assets but have no