FARMASI TAPAH

Non-current assets
Shophouse at carrying value 72
Office equipment at carrying value 34
Total Non-current assets 106

Inventory 224
Accounts receivable 422
Prepaid expenses 2
Bank 6
Total current assets 654

Current liabilities
Accounts payable 380
Accrued expenses 2
Short-term loan 10
392

FARMASI TAPAH
1 Current ratio current assets ÷ current liabilities
current assets RM'000 654
current liabilities RM'000 392

Current ratio 1.67

FARMASI SERI ISKANDAR

320
244
564

316
191
-
36
543

245
-
3
248

Notes: Extracted from:

https://www.accaglobal.com/vn/en/student/exam-support-resources/fun
FARMASI SERI ISKANDAR damentals-exams-study-resources/f2/technical-articles/ratio-analysis.html

543
248
Current ratio
The current ratio compares liabilities that fall due within the year with cash balances, an
within the year. It assesses the company’s ability to meet its short-term liabilities. Traditi
should exceed 1:1. For a company to be able to safely meet its liabilities it should probab
current ratios vary between industry sectors, and many companies operate safely at belo

With the current ratio it is not the case of the higher the better, as a very high current ra
indicate that a company is too liquid. Cash is often described as an ’idle asset‘ because it
cash is considered wasteful. A high ratio could also indicate that the company is not mak
2.19 finance.
ar with cash balances, and assets that should turn into cash
ort-term liabilities. Traditionally textbooks tell us that this ratio
iabilities it should probably exceed 2:1, however, acceptable
nies operate safely at below the 2:1 level.

as a very high current ratio is not necessarily good. It could

an ’idle asset‘ because it earns no return and carrying too much
the company is not making sufficient use of cheap short-term
 FARMASI TAPAH
Non-current assets
Shophouse at carrying value 72
Office equipment at carrying value 34
Total Non-current assets 106

Inventory 224
Accounts receivable 422
Prepaid expenses 2
Bank 6
Total current assets 654

Current liabilities
Accounts payable 380
Accrued expenses 2
Short-term loan 10
392

FARMASI TAPAH

Quick ratio (acid test) = (current

assets – inventory) ÷ current
2 Quick ratio liabilities

current assets RM'000 654

inventory RM'000 224
current liabilities RM'000 392

Quick ratio 1.10

FARMASI SERI ISKANDAR

320
244
564

316
191
-
36
543

245
-
3
248

Notes: Extracted from:

https://www.accaglobal.com/vn/en/student/exam-support-resources/fun
FARMASI SERI ISKANDAR damentals-exams-study-resources/f2/technical-articles/ratio-analysis.html

The quick ratio (acid test) recognises that inventory often takes a long time to convert in
values from liquid assets. In practice a company’s current ratio and quick ratio should be
operating cash flow. A healthy cashflow will often compensate for weak liquidity ratios.

543
316
248

0.92
 a long time to convert into cash. It therefore excludes inventory
and quick ratio should be considered alongside the company’s
or weak liquidity ratios.
 FARMASI TAPAH
Non-current assets
Shophouse at carrying value 72
Office equipment at carrying value 34
Total Non-current assets 106

Inventory 224
Accounts receivable 422
Prepaid expenses 2
Bank 6
Total current assets 654

Current liabilities
Accounts payable 380
Accrued expenses 2
Short-term loan 10
392

FARMASI TAPAH

3 Inventory turnover ratio Cost of good sold / average inventory 7.37

Average inventory = (beginning inventory

balances + ending inventory balances)/2 304

Purchases = COGS +
Ending Inventory -
Beginning Inventory
Purchases RM'000 2,080

COGS RM'000 2,240

Ending Inventory RM'000 224

Beginning Inventory = COGS + Ending

Inventory - Purchases 384
FARMASI SERI ISKANDAR

320
244
564

316
191
-
36
543

245
-
3
248

FARMASI SERI ISKANDAR

12.30

298

3,700

3,664

316

280