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Understanding cash ratios

The cash ratio is the most conservative liquidity ratio. It goes a step further and examines the ability of the firm to settle short term liabilities. It excludes all current assets except the most liquid: cash and cash equivalents. This ratio indicates the extent to which current liabilities can be paid through very liquid assets. The cash ratio is defined as follows:

The cash ratio is an indication of the firm’s ability to pay off its current liabilities if for some reason immediate payment were demanded.

Example: If ABC Company has cash amounting to Rs. 100 Mn and Marketable Securities Rs. 30 Mn. The Cash ratio is 0.4 indicating that liquid current assets are 0.4 times the current liabilities.

Asset Management Ratios

Asset management ratios indicate of how efficiently the firm utilizes its assets. That is they indicate the efficiency of the use of assets in generating sales. They are also referred to as efficiency ratios, asset utilisation ratios, or asset turnover ratios. There are five key efficiency ratios.

Average Collection Period (ACP)

The average collection period, also known as days sales outstanding, indicates the average length of time the firm must wait after making a credit sale before it collects cash. In other words, it shows the average number of days accounts receivables remain outstanding. The ACP is calculated as the receivables divided by credit sales per day.

This is an important ratio used to evaluate the credit policy of the firm in relation to the industry norms. A higher ACP indicates a liberal policy in that the firm gives more times to debtors for making payments. A lower ACP indicates a stringent policy in that the firm gives less time for debtors.

Example: Assume that ABC Company’s sales are Rs. 4,800 Mn and 75 per cent of these sales is from credit sales and Accounts Receivables is Rs. 300 Mn. The Average Collection Period is 30 days.

If the ACP of the Industry is 20 days then this indicates that ABC Company is less efficient in collections and seems to have a more liberal credit policy.

Inventory Turnover

Another major asset turnover ratio is inventory turnover.

It is the cost of goods sold in a time period divided by the average inventory level during that period, where the average inventory is the sum of the beginning and ending balance sheet inventory divided by two.

This ratio indicates whether inventory levels are reasonable in relation to cost of good sold.

Lower Inventory turnover ratio relative to the industry standard may indicate excessive, obsolete, or slow-moving inventory, while higher turnover may indicate inadequate inventory and perhaps possibility of inventory shortages.

Example: If ABC Companies cost of sale is Rs. 2,950 Mn and the inventory at the beginning is Rs. 500 Mn and at the end inventory is Rs. 580 Mn, the inventory turnover for ABC Company will be as follows,

Assume that the industry norm is eight times then this indicates that ABC is less efficient in inventory management. It needs to examine the investment in inventory to see why it is carrying too much inventory.

If you have any queries, suggestions or questions you want answered through this column, please forward them to Daily News Stock Market Column, Colombo Stock Exchange, 4th Floor, West Block, World Trade Centre, Echelon Square, Colombo 01.

Eureka Interactive Media refurbishes Holiday Villas

Chairman of United Holidays, Asger Mohideen and CEO of Eureka Technology Partners Dilendra Wimalasekere at the presentation.

Eureka Interactive Media has given the Holiday Villas website a face lift with its bespoke solutions, making the site more attractive and user friendly (www.holidayvillas.lk).

The latest project marks another successful revamp of a travel site within the United Holidays group. In a competitive environment where customers have an extensive variety of travel destinations to choose from, a website that captures their attention has become a key marketing tool for leisure companies. Through constant change and innovation powered by Eureka’s expertise in the field United Holidays’ websites offer the exact needs of customers.

With a revamped visual experience to keep up with today’s consumer needs, and added new features such as need-specific signature tours, United Holidays and Eureka have ensured that Holiday Villas remains ahead of competition. “Despite the tough times faced by the tourism industry in Sri Lanka, the luxury travel segment has been growing steadily.

This has been fueled mainly by the many new villas and boutique hotels that have emerged over the past few years.

Holiday Villas was created to cater to this segment which has very specific needs.

Eureka has delivered a high quality, visual and dynamic site that meets the needs of premium travelers,” Executive Director of Holiday Villas Chaminda Dias said.

Hilton Colombo’s ‘Big 21’ revealed

Hilton Colombo announced their biggest, most anticipated celebration yet - their 21st Birthday bash. This is to be held on Sunday the September 21, from 6 p.m. onwards.

Marketing Communications Manager of the hotel Gigi De Silva, revealed that in the lead up to this massive celebration, the hotel will go to great lengths to transform their sports centre complex into a spectacular setting where guests can indulge in an evening of food, entertainment and enjoy a carnival atmosphere. She added, “There has never been a party like this in the country before.”

At the spectacular celebrations, guests will be able to feast on a 21 varieties of cuisines from across the world. The multi award winning chefs from the Hilton Colombo will put together this authentic dishes from countries including Japan, China, Germany, France, America and Italy, amongst others.

Guests attending the ‘Big 21’ will also be treated to the very best entertainment acts in Sri Lanka, with favourites Marians, Iraj, Centigradz, Chinthy, Ashanti, Natasha, Phase three, dancing stars Dushyanth Weeraman and Hashini, and the World Choir Champions Revelations signing up for the event.

While crowds will also be treated to a display of coordination as the award winning Hilton bartenders display their flaring skills on the country’s longest bar. General Manager of the Hilton Colombo William Costley said, “We’ve had a great 21 years here in Colombo and we have always wanted to provide our guests with the very best in hospitality. As such we intend to make the Big 21 a truly spectacular and memorable event; the biggest of the year”.

“We were voted the Best Hotel in Sri Lanka 2007 at the “Oscars” of the Travel and Tourism Industry, the World Travel Awards in Bangalore in December as well as the best Hilton International Brand Service Worldwide Hotel of the Year 2007, Asia Pacific Brand Award Winners, Asia Balanced Scorecard Winners, Asia and Asia Pacific Hilton.

The management of the hotel also revealed plans to create the longest sandwich, flaring bar and ice-sculpture birthday candles that the country has ever seen.


The 33rd Annual General Meeting of the Travel Agents Association of Sri Lanka (TAASL) and the 20th Annual General Meeting of the IATA Agents Association of Sri Lanka (IATA-AASL) were jointly held in Pattaya, Thailand from August 01-05, 2008. Over 100 participants attended this event, which included a two-night stay in Pattaya and a two-night stay in Bangkok.

S Premakumara of Travel World (PVt.) Ltd. was elected as the President of the Travel Agents Association for the year 2008 / 2009 while Gerard Victoria of BOC Travels (Pvt.) Ltd. was elected as the Snr. Vice President and V Mahathevan of Pyramid Air Services Ltd. was elected as the Jnr. Vice President. S Paramanathan of Atlas Lanka (Pvt.) Ltd. will join the Council in his capacity as the Immediate Past President.

The following members were elected as Council Members of the Travel Agents Association for the year 2008 / 2009:

Anne Sivalingam of Anne Travels and Tours (Pvt.) Ltd., Suresh Mendis of Classic Travel (Pvt.) Ltd., Dino De Fonseka of Delair Travels (Pvt.) Ltd., Channe Wijemanna of George Steuarts Travel Intl. Ltd., Rohan Abeywickrema of Hawk Travels Ltd., Riza Ahamat of Hemas Travels (Pvt.) Ltd., A A M Wazeer of JNW Lanka Tours, Trevor Rajaratnam of Mackinnons American Express Travel (Pvt.) Ltd., Rodney J Koelmeyer of Superlink Travels (Pvt.) Ltd., Rizmi Riyal of The Traveller Global (Pvt.) Ltd., A Vigneswaran of VMS Travels and Tours (Pvt.) Ltd. and Ahintha Amerasinghe of Worldlink Travels (Pvt.) Ltd.

The Deputy Mayor of Pattaya graced the dinner that followed the Annual General Meetings. Other invitees included members of the Tourism Authority of Thailand, representatives of tourism associations in Pattaya.

A Cultural Show sponsored by the Tourism Authority of Thailand and a business card draw where several airline tickets were given away, ended the day’s events.

The Principal Sponsor of the event was SriLankan Airlines who provided both Associations with a very special airfare for the participants.

Hayleys AIG Insurance came forward to sponsor participants to a Dinner Cruise on the Chaophraya River in Bangkok. Air Arabia, Emirates, Singapore Airlines and Qatar Airways very kindly provided air tickets, which were given away at the business card draw and Thai Airways hosted the Gala Dinner following the Annual General Meeting.

The three GDS companies Abacus, Amadeus and Galileo also provided sponsorship for the event.

R.P.C. Global Travels promote local lourism

At a time when inbound tourism has dropped compared to previous years, the domestic market has blossomed out for R.P.C. Global Travels, the strategic business unit of the Richard Pieris Group.

The Company recently handled a group of 160 from Dialog who, together with their families, were treated to an overnight stay and a memorable award ceremony.

Managing Director Franklyn Mendis, commenting on MICE (Meetings, Incentive groups, Conferences and Exhibitions) segment said: “Sri Lanka has so much of resorts, boutique hotels, villas, apartments, bungalows or facilities for adventure that are not known to many and not promoted well. We are promoting them among locals, both individuals and groups, depending on their requirements and budgets.”


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