Question

Base in the information below, would you like to fund this company or not: (Why? could you give me your funding recommendation )

cash ratio = 0.43 cash reserve ration=0.20 current ration = 1.41 asset ratio=0.69

target liquity level=751,945 debt ration=0.71 return ratio=1.29 Net surplus=-363,409

Program expense ratio=0.76

Answer 1

Cash ratio = Cash & Cash equivalents/ Current Liabilities = .43

Cash Reserve Ratio (amount of cash deposited with central reserve) = .20

Current ratio = Cash & Cash equivalents + Account receivables + Inventory (Current Assets)/Current Liabilities = 1.41

Asset Ratio = Equity + Long term loan / Fixed assets = .69

Debt ratio =Total liabilities / Total assets = .71

Target Liquidity level = 751,945

We should not fund this organization , reasons behind non funding are given as follows:

1. Net Surplus is negative i.e,  Net surplus=-363,409

2. Current assets contain large amount of account receivable or inventory as we can see from cash ratio that is is only .43 , this means company is delaying in recovery of account receivable

3. Target liquidity level is high

4. Program expense ration should be generally less than .5 , but in this case it is higher

Disclaimer : Question has been answered considering given information, however for proper recommendation naming of ratio's could have been done properly.For example debt ratio can be considered as debt coverage ratio, debt/equity ratio.

Similarly other ratios also don't have proper meaning attached to it