The average performance of companies in the same industry as Bianua Ltd for 2011 is detailed in the table as follows: Industry Average Results 2011 ROI 11% Current Ratio 2:1 Acid Test Ratio 1.2:1 Debt/Equity Ratio 0.3:1 The following figures are taken from the final accounts of Bianua Ltd for 2011 - Leaving Cert Business - Question B - 2012

The Current Ratio is calculated using the formula:

$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$

Substituting the provided values:

$\text{Current Ratio} = \frac{300000}{85000} = 3.53:1$

The Acid Test Ratio is calculated using:

$\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Closing Stock}}{\text{Current Liabilities}}$

Substituting the values:

$\text{Acid Test Ratio} = \frac{300000 - 150000}{85000} = \frac{150000}{85000} \approx 1.76:1$

The Debt/Equity Ratio is calculated as:

$\text{Debt/Equity Ratio} = \frac{\text{Debt}}{\text{Equity}}$

Where Debt is the Long Term Loan and Equity is the sum of Ordinary Share Capital and Retained Earnings:

$\text{Debt} = 300000$ $\text{Equity} = 500000 + 100000 = 600000$

Now substituting in the formula:

$\text{Debt/Equity Ratio} = \frac{300000}{600000} = 0.5:1$

Profitability

The ROI for Bianua Ltd is 5.6%, which reflects the company's return on capital compared to the industry average of 11%. This indicates that Bianua Ltd is not achieving the expected returns for its investors.

Liquidity

The Current Ratio of 3.53:1 indicates that Bianua Ltd has a healthy level of current assets against its current liabilities, significantly exceeding the industry benchmark of 2:1. However, the Acid Test Ratio of approximately 1.76:1 is below the desired ratio, which could indicate potential liquidity issues when accounting for liabilities.

Recommendations

1. Reduce expenses to improve net profit.
2. Increase sales through marketing.
3. Improve cash flow management to address liquidity concerns.
4. Consider leveraging credit options responsibly to enhance liquidity.