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Hi,
I am currently trying to analyse a company's liquidity ratios for an assignment.
The company I am analysing has good quick ratios (around 1.4) and good current ratios (around 2.6) across four years. But its operating cashflow/current liabilities ratios are all less than 1 (around 0.2) across four years.
What are the implications of this? What I understand from this is that the company has a sufficient amount of assets that can be liquidated to cover short term debt, but the cashflow it generates through operation is not enough to cover short term debt. Is this correct?
Furthermore, would these figures suggest that the company is sufficiently 'liquid'? And are they or are they not promising numbers to investors?
I would really appreciate any help!
Thanks!
I am currently trying to analyse a company's liquidity ratios for an assignment.
The company I am analysing has good quick ratios (around 1.4) and good current ratios (around 2.6) across four years. But its operating cashflow/current liabilities ratios are all less than 1 (around 0.2) across four years.
What are the implications of this? What I understand from this is that the company has a sufficient amount of assets that can be liquidated to cover short term debt, but the cashflow it generates through operation is not enough to cover short term debt. Is this correct?
Furthermore, would these figures suggest that the company is sufficiently 'liquid'? And are they or are they not promising numbers to investors?
I would really appreciate any help!
Thanks!