Liquidity Ratios In Tal Lanka Hotels And Sigirinka Hotels PLC

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Liquidity ratios measure company’s ability to pay off short term liabilities using its short term assets (Akinsulire, 2006). Generally, the higher liquidity ratios indicate the margin of safety that the company processes to cover short term liabilities (Akinsulire, 2006).

a) Current assets ratio
Current assets ratio expresses the extent of current liabilities of a company are covered by current assets (Akinsulire, 2006). Generally 2 current assets per 1 current liability are accepted in most scenarios. However If current assets ratio exceeds above mentioned standard, that is indicated company may not be efficiently using its short term financing facilities (Akinsulire, 2006).
In Tal Lanka Hotels PLC current assets ratios are 0.86 times, 1.63
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When compare Tal Lanka Hotels PLC’s stock turnover period with Sigiriya Village Hotels PLC, it seems that Tal Lanka Hotels PLC’s stock management strategies are highly efficient.
It is recommended to match stock management strategies with customer demand. Because unnecessary stock holding leads to higher stock holding cost and damage to stock. Whereas holding less stock level creates problems in customer demand.
c) Debtor turnover
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It means that how effectively debtors have been managed comparing to sale goods or services with average debtors for a specific period. Higher debtor turnover indicates efficiency in debtor management strategies (Samilioglu & Demirgunes, 2008).
Tal Lanka Hotels PLC’s debtor turnover ratio is 6.8 times, 8.1 times and 7.8 times in FY 2013/14, 2011/12 and 2009/10 respectively. There is 16% decrease from FY 2013/14 to 2011/12, it indicates that Tal Lanka Hotels PLC’s debtor collection strategies has not brought efficient outcome to the company and result of increase in debtors during the FY 2013/14
Sigiriya Village Hotels PLC has managed debtor turnover ratio at 4.9 times, 5.1 times and 4.7 times in FY 2013/14, 2011/12 and 2009/10 respectively. Tal Lanka Hotels PLC performed well than Sigiriya Village Hotels PLC by maintaining lower debtor turnover ratio throughout the period. As a result of higher debtor turnover than Sri Lanka Telecom PLC, Dialog Axiata PLC exposes to higher debtor collection period and risk of bad debts.
It is recommend to Tal Lanka Hotels PLC to match debtor collection strategies with operational cash flows requirements. Further effective and flexible debtor collection methods leads to the increase to sales.

d) Debtor turnover

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