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  • Subject Name : Accounting and Finance

Analysis of Liquidity Position of Each of Given Two Companies in Year 2019 and Its Comparison with Previous Year 

Liquidity ratios help to evaluate the company strength to repay its current debt through use of current economic resources. It means these ratios help to evaluate whether company is capable to pay-off the current liabilities without the use of external financial assistance. The two of the most important liquidity ratio that has been used to analyse the short term solvency position of the company are current ratio and operating cash flow ratio.

Calculation of Liquidity Ratios

Financial Data

Clean Seas Seafood Limited

Australian Vintage Ltd





Current Assets





Current Liabilities





Cash flow from the operating activity






Liquidity Ratios


Current Ratio (Times)





Operating cash flow ratio (Percentage)





Current ratio: Current ratio helps to identify the current financial capacity of company to pay off its short term liabilities through using the current assets.

Formula = Current assets / Current liabilities

Current ratio of Clean Seas Seafood Limited (CSS) is 7.76 times in year 2019 that got reduced 4.39 times in year 2018. Current ratio of 7.76 times in year 2019 reflects the availability of excess assets as it is required and it build up the cost of financing the working capital. However, current ratio got reduced to 4.39 in year 2019 due to shortage of cash and increase in current liabilities by double value. On the other hand, Australian Vintage Ltd (AVG) has current ratio of 3.12 times in year and got improved to 3.23 times in year 2019. It implies available of sufficient current assets as against the current liabilities. Therefore, it can be said that both the companies has sufficient availability of current assets to satisfy the requirement to pay the short term liabilities.

Operating cash flow ratio: Operating cash flow ratio is well known liquidity ratio as it helps to measure the adequacy of a company to earn the cash from the operating activities to pay for current liabilities.

Formula = Cash flow from the operating activity / Current Liabilities

On the basis of calculation, it has been found the CSS has negative cash flow from operating activity that reflects non availability of cash funds to pay the current liabilities and company need to depend upon the external sources of finance to fund the requirement of working capital. On the other hand, AVG has 42.57% availability of cash resources to finance the current liabilities in year 2018 and it got reduced to 35.65% in year 2019 that reflects decrease in liquidity position in current year as compared to previous year.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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