ϯϮϮ


       

We will now examine the strengths and weaknesses from applying computations of liquidity,
activity, profitability, leverage and market performance indicators and then compare and review
those performances computations with the trends and benchmarks of the organisation and the
industry.

To help us interpret ratio computations, we classify data into five distinct descriptions:

  
   
 
 
! 

 
 

$ 
"

  

 
"  

         

dŽƉŝĐϳ͗ZĂƚŝŽƐ


ϰϮϮ


dŽƉŝĐϳ͗ZĂƚŝŽƐ


ϱϮϮ

   

%

 8 9

 
 :99999
&
:$9999

,



;8 9<:999999

'
 #=99#999
:=99999
7
:!99999

 *
"
 989

,


: >$





 
: $






 



 

Now use the income statement, balance sheet and additional information for TAMPAS Limited,
to work through a range of ratio groupings.

!"#  

Liquidity is vital to the operations of any business. If a company has not got the cash to pay its
short-term liabilities it is likely to collapse, or certainly make a loss.

When a company's expenses significantly exceeded revenue and there are no cash reserves to
cover these short-term losses then, the company either collapses, or presents a target to be taken
over by a bigger company.

So it is important that we examine a company's cash reserves to assure it doesn't have to sell
valuable assets (often at fire-sale prices) to continue operations. The current ratio is one tool for
doing this.

$  

Current ratio indicates the ability to pay debts as they fall due (in the normal course of business).
Below is the formula and computation.

 

dŽƉŝĐϳ͗ZĂƚŝŽƐ