DFS Section 2.1 - Ratios
Sparkz1988
Registered Posts: 16 New contributor 🐸
I got the ratios and i think i worked them out right but what did everyone put to improve each ratio used? i just guessed :001_unsure:
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Current ratio - I advised to try and get the bank account back into credit, and to avoid using the overdraft, as this would increase the assets and reduce the liabilities and therefore improve current ratio;
Acid Test - reduce stock levels;
Trade Receivables - improve credit control;
Trade Payables - pay the suppliers quicker, which would be easier to do if all of the above improvements were implemented.0 -
thats exactly what i put apart from current ratio and acid test the other way round coz the acid test i thought was excluding stock figure??0
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would it not be an improvement to increase the trade payables rather to decrease them (in days ?). I looked at it from the other way and said we should agree longer payment terms to increase the payment days to say 60 or 90 and this would be an improvement. Not, reduce the days. Did anyone else agree to this angle ? This would impove liquidity ?0
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Sparkz1988 wrote: »thats exactly what i put apart from current ratio and acid test the other way round coz the acid test i thought was excluding stock figure??
Acid Test is Current Assets - Stock / Current Liabilities, so by reducing your stock figure, your Acid Test Ratio will improve.0 -
think my answer was the same as Richards.0
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I was not sure whether to recommend an increase or decrease in the Trade Payable days
I thought about it and in the end said to increase the trade payable days by delaying payments so that we can use the cash elsewhere (as the company was in their overdraft) but I said not too increase the number of days by to much otherwise we could harm relations with our creditors.0 -
sleepysophie wrote: »would it not be an improvement to increase the trade payables rather to decrease them (in days ?). I looked at it from the other way and said we should agree longer payment terms to increase the payment days to say 60 or 90 and this would be an improvement. Not, reduce the days. Did anyone else agree to this angle ? This would impove liquidity ?
Thats a valid point. I think I mentioned that they would need to check their credit terms, and said that if it turned out the terms were 30 days, then improvements would need to me made to reduce the days.
With these written questions you can have a variety of answers, which as long as you back up your reasoning with a valid argument you should receive some credit for.0 -
I suggested to reduce the overdraft to improve acid test and reduce stock levels to improve current ratio - but i'm sure they will accept a number of different suggestions.0
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Phew !
Thanks.0 -
Current ratio - I advised to try and get the bank account back into credit, and to avoid using the overdraft, as this would increase the assets and reduce the liabilities and therefore improve current ratio;Trade Payables - pay the suppliers quicker, which would be easier to do if all of the above improvements were implemented.0
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