Apart from that, Liquidity ratios are also one of the important factor to consider before

investing into a particular company (Hill, n.d.). Liquidity ratios provides the information that
shows whether the company has the ability to meet its current liabilities (Hill, n.d.). These ratios
measure the capability of a firm to pay off its short term debt obligations once they fall due (Hill,
n.d.). Generally, the higher the liquidity ratios are, the higher the margin of safety that the firm
own to meet its short term debts (Hill, n.d.). In other words, it also means that the firm had fully
covered the short term liabilities its had owed (Hill, n.d.). The liquidity ratios also measure on
how fast the firm can convert its short term assets into cash (Hill, n.d.). A company must possess
the ability to covert cash quickly to meet its financial debts when creditors came to seek for the
outstanding fees the firm owed (Hill, n.d.). Therefore, liquidity ratios measure how liquid the
firm is. The most common types of liquidity ratios where business generally look at which are
current ratio and acid test ratio.
Current Assets
Current ratio = Current Liabilities

RM 1,223,704,038
RM 839,094,406

=1.46X (refer to page 81&82)

The current ratio is also called working capital ratio. It measures the companys ability to pay off
its short term debts with its current assets (My Accounting Course, n.d.). The current ratio is
essential as it shows the liquidity of the company. When current assets exceeded current
liabilities, it means that the firm is capable to repay its short term debts and have adequate capital
to run its business operations (My Accounting Course, n.d.). A figure of 2:1 is often reckoned
adequate. The current ratio for LBS BINA GROUP BERHAD is 1.46X whereas the industry
average ratio is 0.23X. Based on the current ratio, LBS BINA GROUP BERHAD is more liquid
than industry average ratio. The company has RM1.46 in current assets for every RM1 in current
liabilities while the industry norm is 0.23X. A higher ratio shows greater liquidity. In this case,
based on the current ratio LBS BINA GROUP BERHAD is in a safe position where it has the
ability to cover its current debts and still have current assets left which it can use it for other
purposes. Hence, Mr Micheal can consider to invest in LBS BINA GROUP BERHAD.

Acid Test Ratio =

Current AssetsInventory
Current Liabilities
RM 1,223,704,038RM 13,024,091
RM 839,094,406

= 1.44X
Acid test ratio can also be called as quick ratio (Calculators, n.d.). Acid test ratio is a more
conservative standard than current ratio (Calculators, n.d.). A figure of 1:1 would be ideally for
quick ratio (Calculators, n.d.). If the quick ratio is too high, it may shows that the firm may retain
too much cash on hand or have a problem in collecting its accounts receivable (Calculators, n.d.).
However, a high quick ratio can be essential when the firm has trouble in borrowing or raising
short term funds (Calculators, n.d.). Similarly, a quick ratio more than 1:1 also means that the
firm is able to meet its current liabilities (Calculators, n.d.). On the other hand, a low quick ratio
means that the firm may depend on too much on inventory to cover its short term debts
(Calculators, n.d.). In this case, LBS BINA quick ratio of 1.44X which is more than the ideal
ratio of 1:1. It also means that all current liabilities can be met and the return is thus adequate
(Calculators, n.d.). Comparing LBS BINA with the market ratio, LBS current ratio is more liquid
than the market ratio. Therefore, Mr Micheal would need to look at quick ratio as it does not
include inventory, which it can see how liquidity of LBS BINA GROUP.

Calculators. (n.d.). Quick Ratio Interpretation. Retrieved from

http://www.ccdconsultants.com/calculators/financial-ratios/quick-ratiocalculator-and-interpretation?tab=interpretation
Hill, R. (n.d.). Study.com. Retrieved from Liquidity Ratio: Definition, Calculation &
Analysis: http://study.com/academy/lesson/liquidity-ratio-definitioncalculation-analysis.html
My Accounting Course. (n.d.). Retrieved from Working Capital Ratio:
http://www.myaccountingcourse.com/financial-ratios/working-capital-ratio