Statement of Smith Ltd Essay Example | Topics and Well Written Essays - 500 words

Statement of Smith Ltd - Essay ExampleAccording to the annual financial reports of Smith Company the year 2012, the afoot(predicate) proportionality recorded was 1.6 (Warren, Reeve, & Duchac, 2012).. This clearly indicates that the firms ability to meet its short-term obligations with time has improved thus, the firm remains liquid and has the ability to meet its short-term financial obligations within a short duration of time. As a result, it is wise to invest in the company has an high current ratio points forth a progress in asset management that allows movement of cash flow thus enhances growth and prosperity. In addition, quick ratio is used as an analytical tool that indicates the firms ability to pay debts it shows the difference in liquidity between account receivables and inventory. This is because most of the companies provide services and goods to its customers on credit basis as they mostly allow favourable credit terms. Smith Company reports a quick ratio of 0.66, thi s shows that the company has enough current assets apart from inventories to enable it pay for its short-term obligations as and when they fall due. Leverage ratios are used by companies to calculate the firms ability to finance its obligation and its ability to generate income that can service the debts and interest rates accrued as the company meet its financial obligations over time.