Answer
(b) Current Ratio declined by 10.9% over the year - implying the reduction in current assets as also depicted by a 4.6% reduction in working capital. However, current ratio declined twice as much as the reduction observed in current ratio. This could be due to the fact that although current assets declined but the current liabilities might have also reduced.
Debt to total assets showed improvement of 26.8% over the past year which could be one of the reason of deteriorating liquidity position as evident from current ratio and working capital i.e., the liquidity was used up to pay off current or non current liabilities.
Surprisingly, Free cash flow increased by 48.5% despite huge decline in debt and reduction in liquidity. This could be due to lower investment in fixed assets or less dividend payment.
Finally, earnings per share (EPS) rose by 13% which is clear from the fact that since company reduced its debt burden, the interest costs declined leading towards improved profitability.
Work Step by Step
Current Ratio: 319100/149200
Working Capital: 319100-149200
Debt To Total Assets: (93000+90000)/807000
Free Cash Flow: 71300-42000-10000
Earnings Per Share: 99200/65000
