companys liquidity, we will be using two significant financial ratios, the current ratio and the quick ratio.
The current ratio is calculated by dividing the current assets total value by the current liabilities total value. In this case, the current ratio is equal to Current Ratio = Current Assets/Current Liabilities = 1.38 (2004)
Current Ratio = Current Assets/Current Liabilities = 1.41 (2003)
The current ratio represents a measure of the companys shot term liability. In this sense, a current ratio value that is below 1 means that the company is not able to cover its short-term liabilities with its short-term earnings. This is obviously not the case for McKesson and, additionally, the companys current ratio has improved from 2003 to 2004.
The quick ratio is calculated by subtracting the overall inventory value from the current assets value and dividing it by the total current liabilities value.
In this case, the quick ratio is equal to 0.66. Corroborated with the result obtained for the current ratio, we may assert that McKesson has a comfortable position in what its short-term solvability is concerned.
In order to evaluate the companys asset management, we will be using the inventory turnover and the total-assets turnover ratios. The inventory turnover ratio is calculated by dividing the net revenues by the overall inventory value. In this case,
Inventory Turnover = 69,506,100/6,735,100 = 10.3 times
It would have been helpful to have an average inventory turnover for the industry in order to be able to have a reasonable comparison. In.