Nalysing the liquidity of Starren PLC (trend analysis)

Liquidity Ratios

Current Ratio

current assets
current liabilities

Quick Ratio, or Acid Test

current assets i?? stocks
current liabilities

Use of the Cash Flow Statement and its restatement to the Direct Method of Presentation from the usual Indirect Method of Presentation: i.e. recast as a receipts and payments account

Average Stock Turnover, or Average Stockholding

average stock x 365 number of daysi?? sales held in stock
cost of sales

The actual Average Stock Turnover is

cost of sales number of times the average stock level is turned over (i.e. sold)
average stock

Debtors Average Settlement Period

average trade debtors x 365 average number of daysi?? credit allowed customers
turnover

Or, as with stock, calculated as average debtor turnover

Creditors Average Settlement Period

average trade creditors x 365 average number of daysi?? credit taken
turnover

Again, it can be calculated as average creditor turnover

No Credit Interval
average stockholding in days + debtors average settlement period in days – creditors average settlement period in days

It measures how long on average it takes to finance stock purchases from initial stock purchase through payment to the supplier and the sale of the stock to the eventual payment by the customer.

It highlights the additional burden on working capital (short term financing) of increases in trading activity.

(Financial Statements will be provided in a separate attachment)