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:
Evaluate the entitys liquidity using the above information.
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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