Liquidity Analysis: Current Ratio and Quick Ratio
Wesfarmers Limited is a major diversified Australian public company with interests in fertilizer and chemicals manufacturing, gas processing and distribution, coal mining and production, building materials, hardware and forest products, rural and country services, transport, country supermarkets, and insurance. The following schedule summarizes the composition of current assets and current liabilities reported on its June 30, 1996 and June 30, 1997 balance sheets:
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Wesfarmers Limited |
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1997 |
1996 |
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(Dollars in millions) |
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Total current assets |
$761 |
$688 |
|
Inventories included in |
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|
current assets |
368 |
1 |
|
Receivables |
||
|
included in current assets |
362 |
685 |
|
Total current liabilities |
822 |
155 |
Required
a. Based on the information given here, determine the firm’s current ratio and quick ratio at the end of 1997 and 1996.
b. In which year do you consider the firm to be in better financial condition? Explain