[FINANCE][REFERRAL CONTINUOUS ASSESSMENT ]

[Finance][Referral Continuous Assessment ]

[Finance][Referral Continuous Assessment ]

Q1-

The analysis of short-term liquidity risk requires an understanding of the operating cycle of a firm. Therefore, in this section, we also include activity analysis to assess the short-term liquidity risk. If a firm can delay all cash outflows to suppliers, employees, and others until it receives cash from customers, and receive more cash than it must disburse, then the firm will not likely encounter short-tem liquidity problems. In this section we will discuss six financial statement ratios for assessing short-term liquidity risk: current ratio, quick ratio, operating cash flow to current liabilities ratio, accounts receivable turnover, inventory turnover and net working capital turnover.

The detail analysis of these ratios is presented in analysiss 3 and analysis 4:

Analysis 3 Liquidity Analysis

Measure or Ratio         Ratio Computation         Canadian Natural

(CNQ)         Marcus Corporation

(ECA)

                 2003         2002         2001         2003         2002         2001

Current ratio         Current assets/ Current liabilities         0.63         0.98         0.99         1.08         1.11         1.07

Q2

£000

Beta factor

Marcus plc

1,000

1.3

Aurelius plc

400

1.4

200

0.7

400

1.5

Evaluation         For every $1 in current liabilities, ECA holds approximately $1.09 of current assets, compared with CNQ as $0.63. The current ratio for ECA is relatively sanalysis over time at a level slightly above 1.0 but less than the industry average reported as 1.6. For CNQ its current ratio is declining much less than industry average indicating CNQ's current ratio is decreasing.

Quick(Acid-test) ratio         (Cash +A/R+ Short-term investment)/ Current liabilities         0.63         0.98         0.99         0.78         0.58         1.00

Evaluation         For every $1 in current liabilities, ECA has approximately $0.78 in liquid assets for the most recent period, compared with CNQ as 0.63. Both ECA and CNQ have a declining quick ratio.

Cash ratio         Cash / Current liabilities         0.076         0.038         0.028         0.077         0.055         0.433

Evaluation         For every $1 in current liability, Both ECA and CNQ had an immediate cash reserve of approximate $0.077. A specific trend is not identifiable. This signals that both ECA and CNQ rely on a continuous turnover of accounts receivable and inventory, and day-to-day operations to meet its recurring liquidity requirements. The upward trend of cash ratio for CNQ indicates an improving cash ratio for CNQ. The reason why ECA had a high cash ratio in 2001 is that in this year the company had high reserve of cash. In the following year (2002), the company 's acquisition activities resulted in a big drop in cash ratio compared with that of year 2001.

Operating cash flows ratio         Net operating cash flows/ Average current liabilities         291.4%         306.9%         309.8%         167.1%         68.4%         138.4%

Evaluation         For every $1 in current liabilities, ECA generates approximately $1.67 in operating cash flows. A sanalysis trend is identifiable for CNQ, indicating that the net operating cash flows generated from the operation provides a substantial source of liquidity for CNQ. If we exclude the factor that ECA acquired another company, resulting in a consolidated financial statement; we can assume that ECA will have an upward trend in operating cash flow ratios. Therefore, these ratios provide strong evidence that both of the companies will generate sufficient cash flows to remain liquid.

Liquidity Interpretation         The current ratio for ECA is relatively ...