Research Journal of Economics & Business Studies - RJEBS - The ...

INTERPRETATION:
The current ratio shows that it has been higher than the stipulated standard rate 2:1 in the past four
years. Hence its liquidity position is good. It indicates that DCI is following conservative policy.
However, the ratio implies looking up of huge funds & there by affecting the profitability of the
company. This aspect needs review of current asset for diversion of funds in procurement of more
fixed assets, i.e. new dredgers, etc which plough back more profits to the company.
QUICK RATIO:
It is also known as acid test ratio. Generally quick ratio of 1:1 is considered to represent a satisfactory
current financial condition .the ratio is greater importance for bank & financial institution but not for
ordinary trading & manufacturing concerns. A good current ratio accompanied by a low quick ratio
will indicate a disproportionately high investment on inventory.
QUCK RATIO = cash & bank balance+ marketable securities & debentures
Current liabilities
TABLE.6. QUICK RATIO
YEAR QUCK ASSET CURRENT
RATIO
LIABILITIES
2005-06 83959.5 17400.33 4.88:1
2006-07 87397.49 18797.18 4.65:1
2007-08 74882.99 23003.54 3.25:1
2008-09 ---- 29524.20 ----
Source: worked out from annual reports of DCI
INTERPRETATION:
The quick ratio in DCI is very comfortable & on higher side from 2005-06 to 2008-09.generally the
specific quick ratio is 1:1 .the increasing quick ratio though indicates a good liquidity position yet it
may suffer from shortage of funds if it has to pay its current obligation in time & its inventories are not
turning over . In 2008-09 DCI did not take the quick ratio.
NET WORKING CAPITAL (NWC):
The difference between current asset &current liability excluding short term bank borrowing is called
net working capital or net current asset .net working capital some tomes measure the firm’s liquidity.
However, it measures the firm’s potential reservoir of funds.
Net working capital ratio = net working capital
Net asset
Table .7 Net working capital ratio (NWC)
Years Net working capital Net asset ( current asset –current liability) NWC ratio
2005-06 676003.39 676003.39 1.00
2006-07 70859.29 70859.29 1.00
2007-08 66359.99 66359.99 1.00
2008-09 69352.26 69352.26 1.00
Source: worked out from annual reports of DCI
Interpretation:
The NWC ratio in DCI indicates there is no deteriorating in liquidity. It shows constant or no changes
in net working capital ratio. But the liquidity ratio can mislead since current asset & current liability
can change quickly.
DEBTORS TURN OVER RATIO:
The debtor turnover ratio indicates the level of investment in “sundry debtors “as the compared to
firms credit policy & normal credit terms of the company. The debtor’s turnover ratio for the past four
years is given a tabular form below.
www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 09, July-2013 Page 88