Ratio Analysis
Current Ratio:
The current ratio gauges how capable a business is in paying current liabilities by using current assets only. Current ratio is also called the working capital ratio. A general rule of thumb for the current ratio is 2 to 1. However, an industry average may be a better standard than this rule of thumb. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 1.80 which declined to 1.10 in 2008 and ultimately in 2009 it boosted up to 2.97, that clearly defines that in 2009 they were quite good enough of being capable in paying their current liabilities by using their current assets only.
Quick Ratio: Quick ratio focuses on immediate liquidity (i.e., cash, accounts receivable, etc.) but specifically ignores inventory. Also called the acid test ratio, it indicates the extent to which you could pay current liabilities without relying on the sale of inventory. Quick assets are highly liquid and are immediately convertible to cash. A general rule of thumb states that the ratio should be 1 to 1. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 0.89 which declined to 0.52 in 2008 and ultimately in 2009 it boosted up to 2.24. Which means, compared to 2007 and 2008 their performance was so good that they could boost it up to 2.24.
Activity Ratio:
Inventory Turnover Ratio:
This ratio shows how many times in one accounting period the company turns over (sells) its inventory and is valuable for spotting under-stocking, overstocking, obsolescence and the need for merchandising improvement. Faster turnovers are generally viewed as a positive trend; they increase cash flow and reduce warehousing and other related costs. According to the description, since their Inventory Turnover Ratio was 1.49 in 2009, so definitely it was good for them as it was 1.33 in 2008 and 1.34 in 2007 which wasn’t that much comparative to 2009.
Average collection period
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The current ratio gauges how capable a business is in paying current liabilities by using current assets only. Current ratio is also called the working capital ratio. A general rule of thumb for the current ratio is 2 to 1. However, an industry average may be a better standard than this rule of thumb. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 1.80 which declined to 1.10 in 2008 and ultimately in 2009 it boosted up to 2.97, that clearly defines that in 2009 they were quite good enough of being capable in paying their current liabilities by using their current assets only.
Quick Ratio: Quick ratio focuses on immediate liquidity (i.e., cash, accounts receivable, etc.) but specifically ignores inventory. Also called the acid test ratio, it indicates the extent to which you could pay current liabilities without relying on the sale of inventory. Quick assets are highly liquid and are immediately convertible to cash. A general rule of thumb states that the ratio should be 1 to 1. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 0.89 which declined to 0.52 in 2008 and ultimately in 2009 it boosted up to 2.24. Which means, compared to 2007 and 2008 their performance was so good that they could boost it up to 2.24.
Activity Ratio:
Inventory Turnover Ratio:
This ratio shows how many times in one accounting period the company turns over (sells) its inventory and is valuable for spotting under-stocking, overstocking, obsolescence and the need for merchandising improvement. Faster turnovers are generally viewed as a positive trend; they increase cash flow and reduce warehousing and other related costs. According to the description, since their Inventory Turnover Ratio was 1.49 in 2009, so definitely it was good for them as it was 1.33 in 2008 and 1.34 in 2007 which wasn’t that much comparative to 2009.
Average collection period
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