Liquidity

Net Working Capital

When funding exceeds fixed assets on the long term, the enterprise will dispose of a
liquidity buffer and this liquidity buffer is formally known as the networking capital of a
company. Now to have a thorough overview of the networking capital of our company, it
is evident to point the steady yet impressive increase our company has experienced
over the 5 years from 2009-2013. You can notice that the networking capital in 2013
(1.763.571,00) is more than twice the number it had in 2009 (704.428,00). Although it is
obvious to mention that the figures shown do indeed indicate a positive aspect for the
company, it is not all that should be taken into account when analyzing them because
these figures tell you a lot more about the company than what had been mentioned in
the beginning. It is also a way to reflect up until what extent your current assets exceed
your short-term debts.
As the years go by you can notice how the adjusted fixed assets have drastically
decreased, which could be credited to the fact that the company opted into the sale of
their financial fixed assets as well as their tangible and intangible ones. In contrary our
permanent financing resources has, although with an oscillating behavior, all in all
increased over the years.
Even though having a positive networking capital is a rather favorable sign for the
company, it isnt enough to completely predict a companys liquidity as more than one
factor has to be taking into consideration.
Need for Networking Capital
The need for networking capital of a company can be defined as the difference between
its trade cyclic needs and its trade cyclic means. Now the trade cycle of a business is
the sum of all the operational actions the company is undergoing. To furthermore define
trade cyclic needs, you may say that it is the need to pre-finance your short term
expenses while the trade cyclic means tells you the spontaneous financing the company
is experiencing. Taking a look at the numbers for the need of networking capital you can
see that there is a gradual decrease within the first 3 years in the company from 20092011 as they went from 1.231.109,00 to -373.845,00, this could be due to the fact that
over the years there was a general decrease in the amounts receivable within one year
while the spontaneous financing was having an entirely opposite effect. A negative need
for networking capital shows that the company is in great need of a positive liquidity
buffer and hence further financing is needed. As we can see in the last 2 years they
managed to get an increase in their amounts receivable within one year and reestablish
a positive need for networking capital.

Cash Ratio
The cash ratio is the difference between the networking capital and the need for
networking capital and it is commonly used to measure the companys ability to meet its
short-term obligations. We can notice that, although there is a steady increase/decrease
in the NWC/NNWC respectively, the cash ratio in the first 2 years is negative because of
the NNWC being a lot greater than the NWC. Which also shows that the spontaneous
financing by our suppliers is indeed limited and that our liquidity buffer is not enough to
carry on such a load as to finance the whole business cycle. In the year 2011
particularly we can see that even though our trade cyclic means overcomes our trade
cyclic needs resulting in a negative NNWC, our cash ratio is still positive due to the
combination with our positive NWC. Finally in the last 2 years, from 2012-2013, you can
see that our company has yet again managed to get itself back to a positive cash ratio
indicating that the company does not need additional financing.

Current Ratio
Since all the companies obviously have different sizes depending on their operational
actions, it is not always easy to compare them to each other solely based on their
figures. That is why certain ratios have been set up for the purpose of ruling out this size
effect, thus current ratio has been considered as a liquidity buffer which is at a
companys disposal to finance its adjusted current assets. Now taking into account the
current ratios of our company from 2009-2013 you can see that, even though there are
minor fluctuations along the years, our companys financial health is rather stable as the
current ratios from 2009-2013 are all >1. Compared to the figures in our sector, it can be
said that our company is doing a great job in keeping themselves on track and in par
with the others as they constantly keep their figures intact with the average current ratio
of the sector throughout the years.

Quick Ratio
Sometimes, despite having a large sum of adjusted current assets in your possession, it
is not always that evident to liquidate them all as certain conditions do apply. Conditions
as such may range from having to wait for the right moment to be able to convert a
stock as to get the maximum amount of revenue possible, to not being able to convert
any assets at all due to the maturity being greater than a year. The quick ratio takes
these limitations into consideration by excluding certain accounts. So if you have a
careful look at our ratios, the first impression would be that our company is in a very
critical position as all of them are <1 from the year 2009-2013. Even though the situation
is indeed alarming, it does not come off as a big surprise as our cash ratio in the first
three years also gives off a negative value and as they turn positive in the last 2 years
you can see the same effect in the quick ratio as it slowly rises.

Stock Turnover Period

Since our company is in the fashion sector and activities arent as frequent compared to
other the sectors, we can see from the data that our Turnover period for finished goods
in stock and work in progress is 0 for the years 2009-2013 so we can only look at our
turnover period for purchased goods in stock and Average stock turnover period for
reference. Judging from our data you can see that the company started off with a rather
high turnover period in the year 2009 but as time went on, from 2010 onwards, it
became more and more stable as the number in the turnover period varied less.

Settlement period For Trade Debtors

When a customer makes a purchase or anything as such the company does not receive
the money immediately, there is usually a period of waiting time that may vary from days
to months. The settlement period for trade debtors allows us to estimate how long that
waiting time takes. From the year 2010-2012 we can notice that the amount of trade
debtors steadily increased, which could be considered as one of the main reasons for
the progressive growth in the average settlement period for trade debtors. This increase
in the average settlement period does not usually work in the companys favor but as we
can from depict from the values in our sector, they are comparatively the same.

Average Settlement Period For Suppliers

The settlement period for suppliers for our company shows an average of 38.57489549
days while the average days for the trade cycle is 207.2857519, giving us a total
number of 168.7108564 days to re-finance. During the 5 years we notice a fluctuating
behavior in the number of average settlement period for suppliers, which could be due
to the values of trade creditors that are showing the same effect as time goes on.
Concluding from the figures in our sector, the average settlement period for creditors is
the same as ours.