Superior's balance sheet Report Essay Example | Topics and Well Written Essays - 500 words

Superior's balance sheet Report - Essay Example The working capitals for Superior Living for the three years are computed as follows: The above calculations clearly highlights that Superior Living has had a steady working capital which is adequately higher than the current liabilities of the company. However, if the company aims at entering into newer projects and investments, the company would require to have a higher working capital. The ration of the current assets and current liabilities is referred to current ratio. The current ratio highlights the liquidity position of the firm and this also highlights the ability of the firm to cover the current liabilities with the help of the current assets. The ratio between the ready cash assets and the current liabilities is referred to as the quick ratio. This is calculated as current assets – inventories – prepaid expenses. The liquidity ratios for Superior Living are computed as follows: Superior Living’s ratio has been at a steady around 2 for the three years. This is a strong indication of good liquidity within the company. It is interesting to note that the inventories form a large portion of the current assets and they cannot be readily liquefied. The ideal quick ration is 1:1 however the company has a much lower ratio and accounts to 0.55. This highlights the fact that the short term cash needs and solvency of the company can be hard to meet (Burks and Wilks, 2007). Hence the company needs to improve the cash assets. Superior living’s short term debts and long term debts are as in the table below. Short term debts refers to the ones which are due within a year which the long term debts refers to the ones due in more than one year (Samuels et al, 2000). Superior highlights a very low gearing ratio and is as low as 2% - 3% for the three years. It is essential to note that despite the increase in the long term debt, there is no evident change in the debt equity ratio. The company is not utilizing its borrowing abilities as an optimum gearing