Liquidity ratios are the ratios that measure the capacity of an organization to meet its fleeting obligation commitments. These ratios measure the capacity of an organization to pay off its transient liabilities when they fall due. The liquidity ratios are an aftereffect of separating cash and other fluid resources by the fleeting borrowings and current liabilities. They demonstrate the quantity of times the transient obligation commitments are secured by the cash and fluid resources. On the off chance that the quality is more noteworthy than 1, it implies the fleeting commitments are completely secured.
By and large, the higher the liquidity ratios are, the higher the edge of wellbeing that the organization …show more content…
Regularly satisfactory current ratio is 2; it’s an agreeable cash related position for most ventures. In the recent study, Megaworld Corporation has higher current ratios than Ayala Land from 2011 to 2013. Hence, Megaworld is more capable of paying its short term debts than Ayala Land. The trend of Megaworld’s current ratios has lost its consistency of increasing in 2013. On the other hand, Ayala Land’s current ratio in 2011 went down on 2012 and recovered on 2013.
On the off chance that the current ratio is too high, the Megaworld may not be utilizing its current resources or it’s fleeting financing offices productively. This may additionally demonstrate issues in meeting expectations capital administration. In this case, the current industry average ratio is 1.2. Both Megaworld and Ayala Land are above average when it comes to current ratio. In addition, it is expected for real estate industry to have low current ratio for they are investing on non-current assets like real property which is the nature of their …show more content…
Megaworld performs better in having higher quick ratios than Ayala Land. However, investors may not be happy with higher quick ratios. It is because of the assumption that the organization should maximize its assets capacity to expand the business that would generate larger revenue and increase shareholder’s wealth. It reflects to the extent that Ayala Land has more invested on real estate than Megaworld in these financial ratios.
Liquidity Ratio Summary Using two liquidity ratios, the results have shown that Megaworld has more current assets to pay for its short term debts than Ayala Land. Megaworld can pay twice as much as Ayala Land for every P1.00 debt. However, due to the industry where they both belong, it seems like Megaworld is not maximizing its current assets in investing on non-current, in particular real properties which is the nature of the business.
CASH FLOW FROM OPERATIONS An accounting item indicating the cash an organization brings in from ongoing, regular business activities, such as manufacturing and selling goods or providing a service. In this paper, we would examine the business activities of Megaworld and Ayala Land. Both of the companies are under real estate industry. This portion of paper would examine and interpret the trends of their cash inflows from developing and selling real estate