Marked exam answers with assessor feedback

Question 3b: Describe TWO liquidity ratios that GFATM might use to assess a supplier’s financial
stability. (6 marks)
Sample answer:
1 Quick ratio or acid test ratio
Assets – stock =
Liabilities
Assessor comments:
2/3 marks
The formula given is incorrect. It should be current
assets - stock divided by current liabilities. But 2
marks awarded for the narrative, which is correct.
This is the more accurate of the liquidity ratios as it removes
unsold stock from the financial indicator. The ratio ideally
should be one or above indicating that the company has
sufficient ‘cash’ to be able to pay its liabilities in the short term.
Stock is removed as it may take time to sell/invoices to be paid
and so the cash is not freely available.
2 Working capital ratio
Assets =
Liabilities
Ideally this indicator total should be 2 or above again indicating
that the organisation has sufficient ‘cash’ to cover their short
and long term liabilities. It is important that this is only a
snapshot taken by using the company’s balance sheet. This
information would only be true on the date of the balance
sheet and so may be outdated.
0/3 marks
The working capital ratio is not a liquidity ratio.
The formula given is not used as a financial
liquidity ratio. Current assets and current
liabilities are the items and their elements that are
compared to analyse liquidity.
Total mark for part (b) = 2/6, a fail grade answer.
Question 3c: Explain the significance of liquidity ratios to GFATM in assessing the financial stability of a
supplier. (5 marks)
Sample answer:
1 The liquidity ratios give an idea as to how much cash the
supplier has to cover its own liabilities or debts. This would also
indicate whether a supplier is likely to have good financial
health and resource to take on additional business of producing
more or any mosquito nets. The supplier may need to employ
additional staff, purchase materials to start the contract with
payment from GFATM not coming for maybe a month or two
depending on the terms agreed in the contract.
Assessor comments:
3/5 marks
This answer lacks some detail. Debtors, and the
other different examples of current assets, could
be included in the explanation. A mark of a credit
standard is justified.
Total mark for part (c) = 3/5
Total mark for Q3 is = 12/20, a credit pass grade,
mainly because of the good answer to part (a).
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