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Sabmiller - Liquidity Ratio Analysis

Essay by   •  May 1, 2013  •  Essay  •  228 Words (1 Pages)  •  1,765 Views

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The current ratio for SABMiller in 2012 is 0.7 and the acid test ratio is 0.51, both of these ratios are low which is a potential warning. This means that they are not able to meet their short term financial obligations if they need to.

However when compared to other companies in its sector we can see that despite being lower than the other companies it is not that far below. SABMiller has a low cash conversion cycle it generally receives cash for beer sales before it has to pay its suppliers" (Allan Gray) in having a low cash conversion cycle it can use the money from sales to pay for its current operations.

b) Days sales outstanding ratio

If we look compare the Days sales outstanding ratio of its peer companies we can see that SABMiller has been lower than the others. This probably explains how it is able to run at a low current ratio. Fast collection of money for their goods means they can run their current operations with cash from sales. However one can see that in 2012 the days sales outstanding jumped up 28% from 34.6 days to 44.2 days and the trend is increasing upwards. This is a warning sign for a weakness that they should watch out for, especially since its competitors are getting more efficient with their days sales outstanding getting smaller.

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