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84.In analysing the financial statements of Regis Ltd, the following ratios were calculated. ...

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Accounting

84.In analysing the financial statements of Regis Ltd, the following ratios were calculated.

2023

2022

Current ratio

1.1:1

1.3:1

Quick ratio

0.5:1

0.7:1

Receivables turnover

30 days

45 days

Inventory turnover

3 times

4 times

Payables turnover

60 days

45 days

Gross profit margin

10%

7%

Return on equity

15%

12%

Required:

  1. Evaluate the entitys liquidity using the above information.
  2. A condition of obtaining a long-term loan from the Scots Bank is that the current ratio should not fall below 1.25:1. Examine the effect on this condition if Regis Ltd considers two courses of action: either to borrow cash with a long-term loan of $90,000 from the bank; or by negotiating with creditors to settle $90,000 of payables with a long-term Note Payable. Assuming the current assets and current liabilities are 660,000 and 600,000 respectively, what course of action would you recommend and why?

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