question 2.2.3- Liquidy of Fine Furniture

[24309]

What did people write for this?

I just said that the cash flow ratio showed a favourable trend as it meant that their cash inflows from op act were able to cover their current liabilities more times therefore positive effect on liquity. HOWEVER the decrease in the interest cover ratio was unfavourable due to them having less cash generated from day to day trading activites to cover interest payments. And cant make an accurate judgement on creditors turnover b/c the credit terms arent offered.

[nacho]

someone pointed out to me that it said 'discuss' so as long as you talked about those things i think you would get the marks
personally my thinking was similar to yours
i wrote that a decline in interest cover whilst an increase in WCR suggest they are taking out more loans and that their liquidity is actually decreasing.

[Anon123]

CTO shouldn't be part of your response, thats an efficiency indicator as far as I know - and there was plenty to talk about for IC and CFR.

anyway, other than defining and talking about trend, I said that an improvement in CFR > decrease in IC, because IC can easily change through something as simple as taking out another loan, as opposed to CFR which has improved despite the increase in interest.

[Furbob]

^ CTO = measures the speed of liquidity? :\ (along with DTO and STO)

[Anon123]

^ CTO = measures the speed of liquidity? :\ (along with DTO and STO)

yeah but its an efficiency measure, and with 2 liquidity measures there, I would assume there would be enough to talk about already - highly doubt you would need to incorporate all 3 into the response..

[mikesguns]

I dunno it was worth 3 marks

[leiza88]

I said that something like:

-Cash Flow is increasing thus more cash is being generated from its operating activities due to an increase in NCA's that are being employed to efficiently to generate sales and whatnot.
-The increase of NCA's increased the amount of interest to be repaid, thus declining the interest coverage ratio.
-They needed to reassess their interest repayments.
-This decline in liquidity can be represented in the increase in CTO.

I have no idea if this is right cause this question stumped me!

[sam.utute]

You can discuss efficiency indicators and their effect on overall liquidity.

Restricting yourself by placing the indicators in categories is counter-productive.

The efficiency of the business will have an immediate impact on its liquidity position.

[BoredSatan]

you dont have to give judgement.. it was a discuss question so you just look at all 3 indicators and say whether it inidicated improvement or worsening per indicator.

1 indicator per mark is my guess

[Anon123]

eh i already took up like 5 extra lines just discussing the cfs and ic >.>, lame

[BoredSatan]

eh i already took up like 5 extra lines just discussing the cfs and ic >.>, lame

I thought they didnt give enough lines as well cause I went over too

[dylanb48]

I can't remember what I wrote exactly but the jist of my answer was that cash flow had only improved marginally and whilst that could be good for liquidity (more cash to cover CL) this was undermined but the vast decrease in Interest cover which may be attributed to the increased creditors turnover as we may be taking to longer to pay creditors and they have started charging interest

[Random_Guy]

Would it be wrong if I did give an opinion? I wrote that liquidity deteriorated, because although the CFR increased, showing that Net Cash Flows from Operating Activities is able to meet the principal of the business' debts, Interest Cover decreased, meaning that the business is not able to meet the interest expenses incurred from those debts, which still must be repaid. CTO also increased, meaning that the business is taking longer and having difficulty in paying off creditors, and as a result, interest may be incurred due to late payments. Would this still be ok?

[Saur11]

Yeah i had the same thing, hopefully it is right. Did you mention any of the numbers though, that might have been important

[BoredSatan]

you wont lose marks for giving judgement but you wont get any extra marks either IMO..

pretty much as long as you talked about all 3 indicators and mentioned their effect on liquidity you should get the 3 marks