$2\mathrm{.}0$ Calculation of relevant liquidity and asset management ratios

$2\mathrm{.}1$ Liquidity Ratio

a$)$ Explanation of Liquidity

Liquidity refers to the ability of asset to be converted easily into cash without affecting the value of the asset. Liquidity ratio refers to the ability of the company to discharge its claims or short$-$term obligations by cash and assets that can be converted into cash in a short period. Liquidity is important in operating the business activities. A poor liquidity status is an early indication that the company is facing fundamental problems.

The examples of liquidity ratio are shown in Figure $1\mathrm{.}0$

$2\mathrm{.}1\mathrm{.}1$ Net Working Capital

Net Working Capital measure the funds that are owned by the company in managing its daily operation.

NWC $=$ Current Assets $$ Current Liabilities

$2\mathrm{.}1\mathrm{.}2$ Current ratio

Current ratio measures the ability of the company to fulfil its short$-$term loans using its current assets.

Current ratio $=$ Current assets $/$ Current liabilities

$2\mathrm{.}1\mathrm{.}3$ Quick ratio

Quick ratio measures the ability of the company to pay its short$-$term loans quickly.

Quick ratio $=($Current assets $$ Inventory$)/$ Current liabilities

Company $1-$ NESTLE $($MALAYSIA$)$ BERHAD

$202020212022$

Current Asset $1,079,8821,139,9381,599,218$

Current liability $1,816,8291,928,4282,258,971$

Inventory $597,270377,050445,201$

NWC $-736,947-788,490-659,753$

Current ratio $0\mathrm{.}5943773460\mathrm{.}5911229250\mathrm{.}707940916$

Quick ratio $0\mathrm{.}2656342450\mathrm{.}3956009770\mathrm{.}51085959$

Company $2-$ ORIENTAL FOOD INDUSTRIES HOLDINGS BERHAD

$202020212022$

Current Asset $104,233,090122,521,724147,603,500$

Current liability $34,135,10940,226,85544,617,613$

Inventory $35,959,64135,322,98242,804,738$

NWC $70,097,98182,294,869102,985,887$

Current ratio $3\mathrm{.}0535449593\mathrm{.}04576943\mathrm{.}308189078$

Quick ratio $2\mathrm{.}0000946532\mathrm{.}1676748532\mathrm{.}348820453$

Company $3-$ KAWAN FOOD BERHAD

$202020212022$

Current Asset $161,976,361188,446,081223,338,825$

Current liability $56,024,30950,223,76451,239,850$

Inventory $30,239,03742,033,80432,732,220$

NWC $105,952,052138,222,317172,098,975$

Current ratio $2\mathrm{.}8911799883\mathrm{.}7521297894\mathrm{.}358693966$

Quick ratio $2\mathrm{.}3514314832\mathrm{.}9151992073\mathrm{.}719889988$

$2\mathrm{.}2$ Asset Management Ratio

b$)$ Explanation of Asset Management Ratio

Asset management ratio measures the efficiency of the management in using the

assets and specific accounts to generate sales or cash. Ratios that can be used to

measure the efficiency in asset management are shown in Figure $2\mathrm{.}0$

$2\mathrm{.}2\mathrm{.}1$ Inventory turnover

Inventory turnover measures the efficiency of inventory management

IVT$=$ Cost of goods sold$/$Inventory

$2\mathrm{.}2\mathrm{.}2$ Average inventory sales period

Average inventory sales period shows the number of days taken to make one round of inventory sales

AISP $=360/$IVT

$2\mathrm{.}2\mathrm{.}3$ Non$-$current asset turnover

Non$-$current asset turnover shows the efficiency of the company in using its non$-$current assets to generate sales.

NCAT $=$ Sales$/$Net non$-$current assets

$2\mathrm{.}2\mathrm{.}4$ Total asset turnover

Total asset turnover shows the efficiency of the company in using all its assets to generate sales.

TAT $=$ Sales$/$Total assets

$3\mathrm{.}0$ Analysis of the relevant liquidity and asset management ratios

$4\mathrm{.}0$ Comparison of the companies$$ financial position; and

$5\mathrm{.}0$ Summary of the assignment.