Activity 10 - Vodafone Acid Test Ratio
As you must expect now, it's your turn to go back to Vodafone's net current asset information and calculate its acid test ratios for the two years for which we have data.
Fill in this table and discuss what you find:
| Acid Test Ratio For Vodafone | |||
|---|---|---|---|
| 31 March 2002 | Current Assets - Stocks: Current Liabilities | _____: _____ | ___: 1 |
| 31 March 2001 | Current Assets - Stocks: Current Liabilities | _____: _____ | ___: 1 |
Did you get this?
As we did with the Carphone Warehouse, let's put the current and acid test ratios side-by-side to help us to understand what is happening to the business:
| Comparison | Current | Acid Test |
|---|---|---|
| 2001 | 0.70: 1 | 0.66: 1 |
| 2000 | 1.47: 1 | 1.14: 1 |
We saw that Vodafone's liquidity position had worsened when we looked at its current ratio. Well, given that the level of stock it carries have increased by around 65% over the years, the acid test ratio has fallen from 2001 to 2002. We don't know how serious that fall is for the overall health of the business but we do know that Vodafone is not in a very healthy state at the moment.
Current assets might not be that liquid since almost 80% of them are debtors. It does have £1.8 billion of short-term investments that it might sell to pay its bills if necessary. Vodafone has almost no cash. When we look at debtors we will see how liquid they are.
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