QuickFix’s liquidity position has weakened over the years. The Current ratio measures the effectiveness of the company to repay short term debt with its short term assets. It stands out that in in 2001 Quickfix’s current liabilities increased from $65,000 to $160,000 a 246% increased. The main reason for the current liabilities increase was the short term bank loans. Likewise the current assets, especially the cash and marketable securities have decreased substantially (by 88%). That huge increased in current liabilities and decrease in current assets has caused the Current ratio to decrease from 6.38 to 3.68 a 57% decreased. From 2001 to 2004 the current ratio has stayed stable in the 3.68-3.74 range.
The Quick ratio measures the effectiveness of the company to repay short term debt with its short term assets excluding the inventory. Similarly to the current ratio, the quick ratio had a significantly decreased from year to year. In this case the decrease was in 2002 from 2 to .57, roughly a 30% decreased. The clear reason for this decrease is the substantial increased in inventory in 2002 from $270,000 to $500,000. So, if Andre wants to assess the liquidity position of the firm he will notice that either accounting or not accounting for inventory, the ratios will show the same information which is that the firm has lost the capacity to repay short term debt with short term assets, and therefore in a case of emergency the firm doesn’t have enough assets to cover its liabilities in the short term.