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Following information has been extracted from the financial statements of ABC Company to analyze liquidity position of the Company based on current ratio. If an
Following information has been extracted from the financial statements of ABC Company to analyze liquidity position of the Company based on current ratio.
- If an industry bench mark of current ratio is 2:1, calculate current ratio of ABC Company from the following data and compare it with industry bench mark.
Particulars | Rs. | Particulars | Rs. |
Cash | 400,000 | Account payables | 100,000 |
Fixed assets | 1,500,000 | Accruals | 150,000 |
Inventory | 150,000 | Short term debt | 250,000 |
Net Income | 725,250 | 10-year Bonds | 150,000 |
Account receivables | 100,000 | Marketable securities | 200,000 |
Long term Debt | 850,000 |
- Calculate current ratio if company has decided to use Rs. 200,000 to pay off short term debt. Discuss whether companys decision to pay off sort term debt with cash is right to improve the liquidity position? Why or why not?
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