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Topic: Analysis of Financial Statements

Discussion Question:

Sehgal Manufacturers is facing an issue of managing its working capital needs, management is worried about financing of daily operations. Although sales of company have an increasing trend but still company is facing shortage of cash. Liquidity analysis of the company’s financial data showed that company has current ratio of 1.3:1 and management wants an improvement in the current ratio. Financial manager of the company has suggested following two alternatives:

  1. Acquiring short term loan of Rs. 100,000 at 12% annual interest rate
  2. Reducing current liabilities by paying off short-term debt of Rs. 200,000 using marketable securities (Ignore gain or loss on sale of marketable securities)

Following information has been extracted from the financial statements for the analysis:

Particulars

Rs.

Particulars

Rs.

Cash

200,000

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

You are required to discuss the impact of each alternative on current ratio (calculations of current ratio in both cases is mandatory as working carries marks) and suggest which option company should select to improve the current ratio without pushing up its liabilities?  Provide reason to support your selection.

NOTE:

You are required to provide complete calculations along with formulas, otherwise marks will be deducted. Also avoid unnecessary details.

 

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Replies to This Discussion

plz case 2. mein current liabilities detail bta dein

how it is equal to 300,000..

Account payables100,000+Accruals150,000 +Short term debt 50,000=300,000



Thanks

Assets mein 450,000 kese hua?

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