1. Current ratio of a departmental store is 2 times however its quick ratio is 0.20 times. Interpret (in terms of favorable/unfavorable) its liquidity position along with logic.
2. The debt ratios of a manufacturing company and a banking company are 0.80 and 0.65 respectively. Interpret the leverage positions for both of the companies.
Current ratio of Departmental store is favorable and Quick ratio of Departmental store is unfavorable because current ratio is better than 1 to 1 is considered good. The higher the ratio, the better the financial position of the company. Departmental store is in sound financial position, and the current ratio of 2 to 1 indicates that they can pay their short-term obligations. But in quick ration company relies too much in inventory or other current assets to meet its short-term liabilities. company is becoming weaker and have not more current assets (excluding inventory) in relation to its current liabilities, there for don’t have ability to pay short term creditors has not improved. The remaining assets are also termed as quick assets.
Debt ration ratios of a manufacturing indicate the good sign its mean that the assets outweigh the debt but there for organization did not paying off its creditor and thus owes more money to them .this is an indication that the organization is becoming weaker and for to self sufficiency in Bank Sector Debt ratio of 1.5 or lower is considered good
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