Simon Everly PLC Financial analysis and decision making Essay

Simon Everly PLC Financial analysis and decision making - Essay ExampleINTERPRETATION OF fluidity RATIOS Liquidity of an system of rules is its ability to meet its shortly term duties (obligations), and it is amongst the major measures of giving medications financial health (Brigham & Ehrhardt 2011). The liquidity ratios for Simon Everly PLC determined in this task involved legitimate Ratio and Acid shield Ratio. Interpretation of the incumbent Ratio This ratio shows the ability of an governing body to pay its short liabilities using its short term Assets (Brigham & Ehrhardt 2011). catamenia ratios of orgainzations should be equal to or more virtuoso (1). If the ratio is either equal to one (1) or more than one (1), the organization is capable of consoling its short term obligations using its present-day(prenominal) Assets (Brigham & Ehrhardt 2011). A current ratio that is less than 1 (one), on the other hand, means that cannot satisfy the needs of its short term liabilitie s, and therefore, is facing liquidity problems (Brigham & Ehrhardt 2011). Simon Everlys Current Ratio The current ratios for the organization as of the 2011/12 and 2010/2011 financial years were shown in the below Current Ratio as of 2011/12 Financial year was 1.72. Current Ratio as of 2010/11 Financial year was 1.94. ... This shows that even though the organizations current ratio liquidity was more than one (1), it was on the down trend, and if proper actions are not taken on time the organization whitethorn be faced with liquidity problems in future. The consequences of this downward trend can be solved by the proposed strategy to obtain more funds for spare investments. Interpretation of the Acid Test Ratio The use of current ratio alone is not sufficient to determine liquidity for organisations since it involve certain current assets such(prenominal) as inventory that may be hard to convert to cash. Therefore, Acid test ratio which eliminates these assets (Assets that are diffi cult to convert into cash such as inventories) will give the real picture of the organizations liquidity (financial health) (Thukaram 2007). Its interpretation is same as that of current ratio. That is, if it is more than one the organization is financially healthy in terms of liquidity and vice versa if it is less than one (Thukaram 2007). Simon Everlys Acid Test Ratio The Acid Test ratios for the organization as of the 2011/12 and 2010/2011 financial years were shown in the below Acid Test Ratio as of 2011/12 Financial year was 0.9055 Acid Test Ratio as of 2010/11 Financial year was 1.19. While the Acid Test Ratio for 2010/11 Financial year was more than one (favourable, 1.19), the one for 2011/12 Financial year was less than one (unfavourable, 0.9055). This means the organization was able to meet the all obligations of short term liabilities using its current assets during the 2010/11 financial year. As of the financial year 2011/12 the organizations liquidity was questionable. T herefore, necessary actions are required in order to improve the organizations liquidity. It is suggested that the