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)