Analysis of Financial Statements for Business Y and Z

Authors Avatar by muzzzy04 (student)

Name: Hassan Ahmed

Unit: 2

Task: 8        

Analysis of Financial Statements for Business Y and Z

Solvency

Current ratio

The current ratio is An indication of a  ability to   commitment; the higher the , the more  the  is.

 =  

                           

This ratio shows how many assets a business has compared to liabilities.

Business Y

180,000

90,000

    =       2:1 Ratio

For business Y this ratio indicates that current assets are twice as large as current liabilities. This simply means that the business can pay they can pay their liabilities. It is considered good practice that a business to have a figure between 1.5 and 2, so that the business can be sure it can pay its liabilities easily.

Business Z

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80,000

16,000

=            5:1 ratio

This is not an ideal ratio because it is higher than 2 and means that the business is not using their assets well and would not be as good as the money should be place elsewhere to improve the business.

Acid test ratio

The acid test ratio shows the assets compared to liabilities, like the current ratio, but by taking out the stock figure from the current assets, its shows how well a business can meet its liabilities without having to sell ...

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