Financial Statement Analysis

a) Using the first approach discussed in my Chapter 2 handout calculate the relevant liquidity ratios for 2010 and 2011, and compare their evolution during this period.a) Did the firm’s liquidity improve between 2010 and 2011? b) What factors contributed to this trend? Explain.a.Current ratioCurrent AssetsCurrent liabilitiesb. Quick RatioQuick AssetsCurrent ratio and Quick ratio has both declined from the year 2010 to 2011 but still the currentratio is 2.16 in 2011 which indicates that the firm is abe to pay all of itscurrent liabilities from the current assets because it is near to ideal current ratio which is 2:1 . In the same way quick ratio has declined in the year but it was still more than the idal quick ratio which is 1:1 which shows that thecompany is able to pay the current liabilities from the quick assets also.This shows that the financialposition of the company is good but it has declined from the previous year.Factors which contributed to these trends are the following;1)Stock of inventories has increased which shows that the company was not able to convert itsstock of inventories into cash.2)Prepaid expenses have increased 3)Current portion of long term debt has increased which shows that the company