2012 (‘000) 2013 (‘000) (Current Asset)/(Current Liabilities) (Current Asset )/( Current Liabilities) = (RM 308,510)/RM161,786 = RM337,728/(RM 222,768) = 1.91 : 1 = 1.52 : 1
The table above shows that Dutch Lady has a decreased in liquidity from 1.91x (2012) to 1.52x (2013). We can see that the current ratio of 1.52 times means, for every RM1 of current liabilities, Dutch Lady only has RM1.52 of current assets as a reserve. Since Dutch Lady is a manufacturing company, its ideal ratio is 2 times. That is every RM2 of current assets is to RM1 of current liabilities. Therefore the company is having more difficulties paying its current obligations on time in 2013 than 2012.
Acid Test Ratio (Quick Ratio)
2012 (‘000) 2013 (‘000)
(Current Asset-Inventory )/(Current Liabilities) (Current Asset-Inventory )/(Current Liabilities)
= (RM 329,199-RM 86,781)/(RM 182,475) = (RM 337,728-RM 113,208)/(RM 222,768)
= 1.33 : 1 = 1.01 : 1 The quick ratios equation shows that Dutch Lady has more overstocking problem in 2013 than 2012.Although their cycle is above 1, in this case as it increases from 1.01 times to 1.37 times, the company is still not in a good condition. Their quick ratio is lower than its current ratios which their current assets are decidedly reliant on inventory. Therefore they may not be able to pay its current liabilities when needed and on time without liquidating its inventories which then may lead to insolvency. Furthermore due to too