LIQUIDITY YEAR CALCULATION INTERPRETATION

2017 RM 189146000 The current ratio for this year is

RM 97789000 1.9:1 which is greater than 1. This
=
indicates that the company at a
desirable situation to be in. It means
CURRENT RATIO that the company has enough liquid
= 1.9:1
assets in order to pay for the short
terms obligations.
Current Assets
2018 RM 192470000 The current ratio for this year is
Current Liabilities
RM 106755000
1.8:1. When the current ratio is
=
greater than 1 this mean that the
company is in solvent because the
total current assets is greater than
= 1.8:1
total current liabilities. This shows
that company manage to cover all
the short-terms liabilities.
1) Explain / Interpret

2) Compare and Comment

In 2018 the current ratio for Khind Bhd goes down from 1.9 in 2017 to 1.8 in 2018. Even
the company still manage to pay its short term liabilities in this year but this indicates that
the ability for the company to pay is decline because based on the current ratio concept
when the greater current ratio, the greater the ability of the company to pay its short term
liabilities. However, the difference between this two years (2017 and 2018) is just about
0.1 which is not a huge difference. This shows a little bit declining in liquidity and
efficiency of Khind Bhd.

5) Two ways to improve current condition of the company.

 i. Liquidity
Two ways that Khind Bhd can do in order to improve its liquidity the company should
change some of the short terms debts to a long term debt. By doing this way the company
can lower the interest rates and help the company to save its liquidity in the short term
and for a better use. Secondly, Khind Bhd can also improve its liquidity by early
submission invoice to the customers. This will effect the increasing in accounts
receivable of Khind Bhd so that the total current assets would increase to and will result
for a better current ratio and the company will have more cash.

ii. Profitability
In order to improve the current profitability of Khind Bhd, the company can remove the
unprofitable products. The company should analyze which is the unprofitable product so
that the company can decide whether the products needs an improvement or being
removed completely. This is because the unprofitable products cannot help the company
to increase the profitability. Other than that, Khind Bhd can also improve its profitability
by reducing all the direct costs. This direct costs can be reduced negotiate for a better
prices or discounts for everything that the company buy with the suppliers.

iii. Solvency
Current solvency of the Khind Bhd can also be improved by increasing the sales of the
company. The company plan a new marketing strategy in order to increase its sales. By
doing this, it can increase cash of the company and it will be able for the company to
settle down the excessive debt load. The other ways to improve company solvency is the
company can increase the equity by increasing the capital so that the company will have
more to spend on growth or the company can pay its debts.