Balance Sheet of Superior Foods - Essay Example

Nevertheless, the credit sales of the company increased by just under 14%. Cash and cash equivalents also recorded a reasonable increment of 13% approximately from 2001 to 2003. However, the major underlying problem of Superior Foods is that the total current liabilities figure has increased at a phenomenal rate of nearly 10% per annum during 2001 – 2003, whereas the growth rate of the total current assets figure is well under 7% per annum. Therefore, it is justified to argue that Superior Food’s current ratio has been constantly declining in the last 3 years.

Indeed, the current ratio was between 2.1 – 2.3 in 2001 and 2002 but reduced to 2.0 in 2003. This is an alarming trend because it may deteriorate liquidity position in the next 5 years. 1) Current Ratio = Current Assets / Current Liabilities (in thousands of US $) = 83900 / 41950 = 2.00 2) Net Working Capital = Current Assets – Current Liabilities = 83900 - 41950 = 41950 As far the liquidity/solvency of Superior Living is concerned, it should be pointed out that the current ratio indicates that for every $1 that Superior Living owes imminently, it has $2.

0 of available liquid resources in the fiscal year 2003. Financial experts usually argue that an excellent current is in the range of 1.5 – 2.0 because it enables the firms to easily pay off their debts and future financial obligations to creditors/lenders Hence, Superior Living is a highly liquid organization because it has $2.0 liquid assets for each $1 short–term liability. The net working capital is 41,950 thousand; therefore, the company enjoys net working capital equivalent to 100% of current liabilities.

However, Superior Living is required to control and minimize the growth in its short-term liabilities to maintain its strong liquidity position. The long-term debts of Superior Living have recorded a cumulative increase of nearly 3% from 2001 to 2003, which is not an alarming sign. For instance, they are just 10% of total liabilities. In contrast, the long-term assets by more than 12% from 2001 to 2003 and they are nearly 60% of total assets. Total Equity also recorded a healthy increase of nearly 10% during 2001 – 2003, which is a positive sign.