Please give a commentary for 2 year about the answer of ROCE, current ratio, and
ID: 2508408 • Letter: P
Question
Please give a commentary for 2 year about the answer of ROCE, current ratio, and quick ratio thank you 1,060861 x100%55,766 1,120459 x100% Profit before tax x100% Profit Margin +273% -277% Profit before interest and tax hare capital + reserves + non 1,060,861 +6208 9,073,098 + 261654 | 1120459+9707 10.2%,436 + 2B0.17? ROCE 100% -11A3% 11,320,254 5,594,210 12,819538 5,235048 Ratio Current liabiities Current assets -Isventory Current liabulities 1,320254-18375112,819,538-204862 55942105,235040 Quick 1.99 2.41Explanation / Answer
Answer:
ROCE Return on capital employed ratio measures the efficiency with which the investment made by shareholders and creditors is used in the business. Managers use this ratio for various financial decisions. It is a ratio of overall profitability and a higher ratio is, therefore, better.
A higher ROCE indicates more efficient use of capital. ROCE of 2017 is higher than 2016. It interprets that the company is generating profit from its capital employed more efficiently in 2017 in comparison of year 2016.
CURRENT RATIO The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. companies with larger amounts of current assets will more easily be able to pay off current liabilities when they become due without having to sell off long-term, revenue generating assets.
The current ratio helps investors and creditors understand the liquidity of a company and how easily that company will be able to pay off its current liabilities. A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments.
If a company has to sell of fixed assets to pay for its current liabilities, this usually means the company isn’t making enough from operations to support activities. In other words, the company is losing money. Sometimes this is the result of poor collections of accounts receivable.
The company has lower current ration in 2017 than 2016. It means that the company is not much capable to pay off its current liabilities in 2017 in comparison of year 2016.
QUICK RATIO The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets.
The quick ratio shows how well a company can quickly convert its assets into cash in order to pay off its current liabilities. It also shows the level of quick assets to current liabilities.
Higher quick ratios are more favorable for companies because it shows there are more quick assets than current liabilities.
The company has lower quick ratio in 2017 than 2016. It means that in 2017 the company has not enough quick assets to pay off its current liabilities in comparison of year 2016.