Balance sheet Essay Example | Topics and Well Written Essays - 500 words

Balance sheet - Essay Example However, the major underlying problem of Superior Foods is that total current liabilities figure has increased at a phenomenal rate of nearly 10% per annum during 2001 – 2003, whereas the growth rate of total current assets figure is well under 7% per annum. Therefore, it is justified to argue that Superior Food’s current ratio has been constantly declining in last 3 years. Indeed, current ration was between 2.1 – 2.3 in 2001 and 2002 but reduced to 2.0 in 2003. This is an alarming trend because it may deteriorate liquidity position in next 5 years. 1) Current Ratio = Current Assets / Current Liabilities (in thousands of US $) = 83900 / 41950 = 2.00 2) Net Working Capital = Current Assets – Current Liabilities = 83900 - 41950 = 41950 As far the liquidity / solvency of Superior Living is concerned, it should be pointed out that the current ratio indicates that for every $1 that Superior Living owes imminently, it has $2.0 of available liquid resource in fis cal year 2003. The financial experts usually argue that an excellent current is in the range of 1.5 – 2.0 because it enables the firms to easily pay off their debts and future financial obligations to creditors / lenders.