Friday, August 23, 2019
Financial Statement Analysis Case Study Example | Topics and Well Written Essays - 500 words
Financial Statement Analysis - Case Study Example This shows that the short-term financial position of Advance Auto Parts and Pep Boys is slightly better than that of AutoZone. While a low current ratio shows that the short term financial position is endangered, a very high current ratio would indicate idleness of working capital. It would mean that cash is not being utilized in an optimal way. For example, the excess cash might be better invested in equipment. A current ratio can be improved by increasing current assets or by decreasing current liabilities. Acquiring a long-term loan instead of short-term debt, selling an idle or less useful fixed asset are some of the many ways of improving the current ratio. The quick ratio (also called 'acid test ratio') indicates the liquidity of a business. The quick ratio looks only at a company's most liquid assets and compares them to current liabilities. It tests whether a business can meet its obligations even if adverse conditions occur. In general, quick ratios between 0.5 and 1 are considered satisfactory as long as the collection of receivables is not expected to slow. AutoZone has a very low quick ratio of 0.173 times.