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(a) Award 1 – 2 marks if only the correct answers are given without any working out, or if only the working out and

correct answer is given for one of the ratios.

Award 3 – 4 marks if the correct answers are given along with the working out for both the current and acid  test ratios.

(b) Award 1 – 2 marks if the commentary is vague and/or incoherent. The answer might appear in an unexplained  list-like format.

Award 3 – 4 marks if there is a detailed commentary on the liquidity position of JKL Ltd. There is appropriate  use of business management terminology.

(c) Award 1 – 2 marks if only one reason is explained clearly or the answer lacks detail and/or depth. The answer  might appear in an unexplained list-like format.

Award 3 – 4 marks if there is a detailed explanation of what other information would be needed to judge the

liquidity position of JKL Ltd. Relevant examples are used in the context of the case study and there is effective

use of business management terminology throughout the answer

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a. y1 = current ratio = current asset / current liabilities = 500/200 = 2.5
y1 = acid test ratio = current asset - stock / current liabilities = 500-250 / 200 = 1.25
y2 = current ratio = current asset / current liabilities = 700/300 = 2.33
y2 = acid test ratio = current asset - stock / current liabilities = 700-350/300 = 1.17

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a) Current ratio = Current asset/current liability

Tables 3.5.a
Current Ratio
Firm A :
Current Asset = $100 m
Current Liability = $200 m
Current ratio = 0.5

Firm B:
Current Asset = $100 m
Current Liability = $250 m
Current ratio = 0.4

Tables 3.5.b
Current Ratio
Year 2
Current Assets = 700
Current Liabilities = 300
Current ratio = 2.33

Year 1
Current Assets = 500
Current Liabilities = 200
Current Ratio = 2.5

Acid test ratio
(Current asset - Stock)/Current Liabilities

Year 2
(700 - 350)/300 = 1.17

Year 1
(500-250)/200 = 1.25

b)In Table 3.5.b, JKL Ltd. in year 1 and 2 current ratios are a bit higher than the safety margin, which is from 1.5 to 2.0. This shows that JKL still have a higher number of income, compared to the liabilities, which makes the firm to have more savings and options, proving them that JKL Ltd. is highly liquid.

c) Qualitative factors such as brand loyalty are not affecting the ratio analysis, as they are based on the level of the customers perception and staff motivation.

Social factors does not affect the ratio analysis, as natural environments and society are not examined in ratio analysis.

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a)

Year 2 Current Ratio = 700 / 300 = 2.33

Year 1 Current Ratio = 500 / 200 = 2.5

Year 2 Acid Test = (700 – 350) / 300 = 1.17

Year 1 Acid Test = (500 – 250) / 200 = 1.25

(b) Comment on the liquidity position of JKL Ltd. [4 marks]

For the acid test, the liquidity ratio is greater than 1 would imply that the company is able to satisfy its current bills. In fact, a current ratio of 2.0 means that a company can cover its current liabilities two times over.
(c) The cash possessions of JKL Ltd have increases by 300% from $50000 to $200000, which will be benefit for the liquidity. It is also important to know the high stock turnover rate or how rapidly its things are sold because the current rate is a decent mark of the organization’s liquidity.

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a)

Y1 current ratio = 500 / 200 = 2.5 : 1

Y2 current ratio = 700 / 300 = 2.33 : 1

Y1 acid test = 500 – 250 / 200 = 1.25 : 1

Y2 acid test = 700 – 350 / 300 = 1.17 : 1

b)

The liquidity position of JKL is favorable. JKL Ltd has sufficient operational capital for current liabilities in the second year, at the present rate, in both years. When the current ratio is too high, as with the 2.33 in the current assets, it is clear that resources are not being utilized effectively.

Similarly, JKL Ltd's liquidity dropped as a result of the acidity test, but we believe it is still favorable because it went above the acceptable minimum ratio of 1:1.

c) With the increasing of JKL's cash holdings, its liquidity will also increase responding to the former. The liquidity position of JKL could also be determined by the quality of management, as well as the quality of assets at hand. Finally, the rates of products sold could affect their liquidity position.

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c. Other information might be needed to judge the liquidity position of JKL.Ltd:
- They could look at the stock of the company have. This affects the quick ratio value.
- Based on 300%, the cash of JKL.Ltd is changed from 50k to 200k.

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b. The liquidity position of JKL is quite good because it has a value greater than 1. The current ratio of both years is about 2. Which mean this company is less facing financial problem. The higher ratio it has, the more safety margin that the business possesses to meet its current liabilities.

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(a) Current ratio = Current Assets / Current Liabilities
Y1: 500/200 = 2.5
Y2: 700/300 = 2.33
Acid test ratio = (current assets - stock) / current liabilities
Y1: (500-250)/200 = 1.25
Y2: (700-350)/300 = 1.17

(b) Comment on the liquidity position of JKL.Ltd
A good liquidity ratio is anything greater than 1. It indicates that JKL is in good financial health and is less likely to face financial hardships. With ratio equal to 2.33 of the second year the business will be able to possess to meet its current liabilities as the higher ratio, the higher is the safety margin there is.

(c)
The current ratio measures the liquidity of a company and is calculated by dividing its current assets by its current liabilities. The term current refers to short-term assets or liabilities that are consumed (assets) and paid off (liabilities) is less than one year. Furthermore, the cash flow statement provides detailed insights into how a company used its cash during an accounting period. It shows the sources of cash flow and different areas where money was spent, categorized into operations, investing, and financing activities