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

Statement of Smith Ltd - Essay ExampleAccording to the one-year financial reports of Smith Company the year 2012, the current ratio recorded was 1.6 (Warren, Reeve, & Duchac, 2012).. This clearly indicates that the firms ability to becoming 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 clothe in the company has an high current ratio points out a progress in plus management that allows movement of cash flow thus enhances growth and prosperity. In addition, quick ratio is utilise as an analytical tool that indicates the firms ability to pay debts it shows the difference in fluidity between account receivables and inventory. This is because most of the companies provide services and goods to its customers on credit basis as they by and large allow favourable credit terms. Smith Company reports a quick ratio of 0.66, this show s that the company has affluent current assets apart from inventories to enable it pay for its short-term obligations as and when they fall due. Leverage ratios are utilise by companies to calculate the firms ability to finance its obligation and its ability to generate income that go off service the debts and interest rates accrued as the company meet its financial obligations over time.