Liquidity Ratio Paper

Liquidity ratio

Liquidity ratio is use to measurement of the ability of a subjected firm to meet its short term financial obligations. It offers less risk to taken because it is above the industry average. Liquidity ratio includes high current ratio, it may not necessary be a better liquidity due to its high inventory level, in additional, it also indicate company’s problem in moving from shelf. Liquidity ratio also includes quick ratio, it known as an acid test ratio where there is no inventory due to least liquid. Liquidity is important to its firm because it can conquer the problem when the company does not have sufficient fund to pay off their debt to creditors.

Based on the financial statement of the Hwa Tai Industries Berhad, there

The faster a business is able to convert its assets into cash or sales, the more efficient it runs.

The inventory turnover of the company had decreased by 0.56x in year 2016 compare to year 2015. It is due to the increasing in inventories in year 2016. Lower inventory turnover in year 2016 means that the company may not selling their inventories fast in year 2016 compare to year 2015. It may also due to Hwa Tai may do not take sales cycle into account. It caused them could be stuck with product on their shelves for longer than the company expected. Lower inventory turnover may also due to Hwa Tai product demand of consumer slow down. As mention earlier, the inventory had increased in year 2016 which will also bring up the value of total asset. Of course, increasing in inventor. Of course, increasing in inventory is just one of the factor for the increasing in total asset in year 2016. It may also due to the compare had purchase plant or equipment that are needed by the

This is due to the Hwa Tai can only use RM1.34 of asset to cover their liability. The company may not able to pay their short term liabilities no matter in year 2015 or year 2016. The ideal of result of current asset should be 1.2-2.5 times greater than current liabilities. The result of Hwa Tai just achieved in year 2016 but there is 1.23 times only.

In term of operating performance, Hwa Tai Industries berhad is not doing well for both year 2015 and year 2016 for using the asset to generate sales. Although the inventory turnover is high for in year 2015, it may not indicate the company perform well. As the cost of sales for year 2016 is RM 42,298,866 but the total sales was only RM 63,173,627. It means that the cost of sales was high. The company gross profit was only RM 20,874,761. The cost of sales occupied around 67% which means the gross profit margin was only 33%. The lower sales in this company may not bring dividend for their