Dowson is a large business which owns a number of shops. It sells a range of electrical goods such as computers and televisions. The Finance Director has been looking at some recent financial data, as shown in the table below. He is pleased with Dowson's liquidity but knows he must reduce its high level of debt including an overdraft of $6m. He said: 'The economy is in recession. Many small retailers have failed. Size is an advantage!’
- DAWSON TABLE.JPG (14.26 KiB) Viewed 207 times
13 Do you think the Finance Director is right to be pleased with the liquidity of the business? Justify your
answer using the ratio results in the table. [6]
Possible KN Points:
• Current ratio increased
• Acid test lower
• Expenses are high
• Risk that demand might fall
• High level of inventory
• High level of trade receivables
• Current ratio shows the business is able to pay its short-term debts