Module 5 assgn 1 save for

Module 5 assgn 1 save for - LIQUIDITY MEASUREMENT CURRENT...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
LIQUIDITY MEASUREMENT CURRENT RATIO As seen at the table, current ratio for Estee Lauder is decrease from 1.54 in 2005 to 1.49 in 2007. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short- term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better. Since the current ratio is decreasing each year this mean that Estee lauder current asset cannot cover their current liabilities. QUICK RATIO The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. In this case, Estee lauder are having problem in their quick ratio since in 2005 (1.02), 2006 (0.98) to 2007 (0.92). The decreasing number in the current ratio indicate that a weak liquidity and higher risk for short-term lenders. LEVERAGE RATIO DEBT RATIO In debt ratio analysis we can see there are improvement from year to year. In 2005 the debt ratio is 56%, increase 1% in 2006 (57%). in 2007 the ratio is jump high to 71% which is increase 14%. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on. As seen in the analysis, Estee Lauder is having a higher risk in 2007 than 2005 since they have a pile of debt. DEBT– EQUITY RATIO
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/25/2010 for the course BUS 210 taught by Professor Scottrought during the Spring '08 term at University of Phoenix.

Page1 / 3

Module 5 assgn 1 save for - LIQUIDITY MEASUREMENT CURRENT...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online