According to the blow two analysisindex analysis and ratio a

According to the blow, two analysis(index analysis and ratio analysis) prepare a report yielding a recommendation on whether to grant a loan to the company. Support your recommendation with relevant analysis.

Year Soles CoGs o.38 140.1 43. 2 ls8203 018 8V8 6l.6 M Cests let ntonte 112.5

Solution

YEAR 4 ANALYSIS:-

ACID TEST RATIO =1.466 which is given by following formulae:-

it is given by following formulae: liquid assets/ current liabilities

the ideal acid test ratio is 1:1 which means that $1 is available to meet the current liabilities having $1.

since the company has acid test ratio as 1.466 which is a good sign of satisfactory liquidity positioni.e company is able to meet its current obligations in full with no bad debts position.

COLLECTION PERIOD OF RECEIVABLES IS 20.160 DAYS :-

it shows that company is able to recover the amount from its debtors in 20.160 days which is again position of sound liquid position.

WORKING CAPITAL has also come out to be positive with a healthy amount of 133200 which means current assets of a company is more than current liabilities by 133200.

YEAR 5 ANALYSIS:-

in the year 5 acid test ratio has slightl declined to a level of 1.097 , however it still meets the standard of being an idealratio of 1:1.perhaps this declined could be seen due to increase in the collection period of debtors to 28.112 days.

current ratio has also declined to a level of 1.924 but the amount of working capital has increased to 164200 may be due to the factor of less inventory ratio compared to the previous year and high holding period of stock compared to the previous year leading to high amount of current assets in the form of stock and less liquidity compared to the previous year.

CONCLUSION:-

on the basis of the discussion stated above , we can say company has sound liquidity position in year 4 which has slightly declined in year 5 , however still company has enough liquid funds in its hands to pay off the interest and principal obligations of the new loan.

loan can be granted to a company after considering its sound solvency and liquidity position.