Question 10.A.13: Calculate the cash flow from operations ratio for Alexis Ltd ...
Calculate the cash flow from operations ratio for Alexis Ltd for the year ended 31 March 2017.
What do you deduce from the liquidity ratios for 2016 and 2017?
The cash flow from operations ratio for the ended 31 March 2017 is:
34/432 = 0.1 times
Although we cannot make a totally valid judgement without knowing the planned ratios, there appears to have been a worrying decline in liquidity. This is indicated by all three of these ratios. The apparent liquidity problem may, however, be planned, short term and linked to the expansion in non-current assets and staffing. It may be that, when the benefits of the expansion come on stream, liquidity will improve. On the other hand, short-term claimants may become anxious when they see signs of weak liquidity. This anxiety may lead them to press for payment, which could cause problems for Alexis Ltd.