Language Bar

Wednesday, October 24, 2012

MGT201 GDB 1 Solution 2012



Ratio analysis


Learning Objective:
To understand the key decisive factor in working capital management with the help of liquidity ratios.

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 automobile tyre manufacturing business by introducing a new tire manufacturing technology.  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 liquidity of a company is satisfactory?
Support your answer with logical reasoning.


Important Instructions:
1.       Your discussion must be based on logical facts.
2.       The GDB will remain open for 3 working days/ 72 hours.
3.       Your answer should be relevant to the topic i.e. clear and concise.
4.       Your discussion should not exceed 60 words.
5.       Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
6.       Obnoxious or ignoble answer should be strictly avoided.
7.       Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.





Ø       For detailed instructions, please see the GDB announcement.




       ----------------------------------------------------

SOLUTION


In my point of view liquidity of Eco Tyre Ltd Company is satisfactory. Because Current ration and Quick ration is more then FY2010 and company easily bear the liabilities. Return on asset is also increase. Inventory turnover shows less liquidity of inventories. Average collection period is critical condition. It should be less as many for the liquidity of company.   





10 comments:

  1. I am advising what I have done in this GDB..
    1) No need to solve it mathematically, just do some commentary on it & by considering all the ratios...
    2) Please be noted that don't concentrate on each ratio in an isolated way, you should comment mainly on Current, quick ratio & single line statement for other ratios !! hopefully it clears..


    Read more: MGT201 GDB solution - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-gdb-solution-3#ixzz2AEK7BNLV

    ReplyDelete
  2. Liquidity of the company is not satisfactory short term debt.

    It is unsatisfactory, since, the current ratio is also the liquidity ratio. As long as the current ratio is between 1.5-3 the company is good. However below 1 means that current liabilities are exceeding current assets

    Read more: MGT201 GDB solution - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-gdb-solution-3#ixzz2AEKCJZLR

    ReplyDelete
  3. please visit page # 15 of lec 3 SOME FINANCIAL RATIOS for better understanding

    the liquidity of company is not desirable or not satisfactory cause the Quick and current ratio of a company is very low compare to a desired Quick and current ratio

    Read more: MGT201 GDB solution - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-gdb-solution-3#ixzz2AEKGMQ2m

    ReplyDelete
  4. liquidity of the company is unsatisfactory because low values of current and quick ratio(both values are less than 1). its mean that company face difficulty to meet current obligations.

    Read more: MGT201 - Financial Management first Gdb started on 22 oct 2012 to 24 oct 2012 - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-financial-management-first-gdb-started-on-22-oct-2012-to#ixzz2AEKLLQqN

    ReplyDelete
  5. i think no the liquidity of the company is not stasifactory short term debt this is my point of view :)
    any ather have idea solution kindly help


    Read more: MGT201 - Financial Management first Gdb started on 22 oct 2012 to 24 oct 2012 - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-financial-management-first-gdb-started-on-22-oct-2012-to#ixzz2AEOaT0PZ

    ReplyDelete
  6. I think it is unsatisfactory, since, the current ratio is also the liquidity ratio. As long as the current ratio is between 1.5-3 the company is good. However below 1 means that current liabilities are exceeding current assets. (Reference : http://en.wikipedia.org/wiki/Current_ratio )

    Read more: MGT201 - Financial Management first Gdb started on 22 oct 2012 to 24 oct 2012 - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-financial-management-first-gdb-started-on-22-oct-2012-to#ixzz2AEOdo7h2

    ReplyDelete
  7. This is very Unfavorable situation. here current assets cannot pay its current obligation. currents assets must be two time of current liabilities.

    Read more: MGT201 - Financial Management first Gdb started on 22 oct 2012 to 24 oct 2012 - Virtual University of Pakistan http://vustudents.ning.com/group/mgt201financialmanagement/forum/topics/mgt201-financial-management-first-gdb-started-on-22-oct-2012-to#ixzz2AEOh9icX

    ReplyDelete
  8. You Copy paste you will get zero, please visit each ratio on google and read about them this is just Idea



    Idea Solution:

    Liquidity of the company is not satisfactory short term debt.

    It is unsatisfactory, since, the current ratio is also the liquidity ratio. As long as the current ratio is between 1.5-3 the company is good. However below 1 means that current liabilities are exceeding current assets.

    ReplyDelete
  9. What is liquidity
    A measure of the extent to which a person or organization has cash to meet immediate and short-term obligations, or assets that can be quickly converted to do this. 2. Accounting: The ability of current assets to meet current liabilities. 3. Investing: The ability to quickly convert an investment portfolio to cash with little or no loss in value.


    ReplyDelete
  10. The report ρrovides established nеcesѕaгy to us.
    It’s very useful аnd yοu are obviously really educateԁ of this tуpe.

    Υou pоsѕеss opеned up my οωn face foг you to diffеrent opinion of this particular ѕubjесt along ωith
    intriguing аnd reliable content.

    my homepagе - viagra

    ReplyDelete

CONTACT US FORM