Cash Ratio
The cash ratio is the most traditional assess of analyzing liquidity position. Generally we meet our current liability with our current asset but the use of either the current or quick ratio is not good enough to analyze the liquidity position of the firm because it consists of account receivable and inventory, which takes time to convert with cash. That’s why it is really important to look how much cash the firm has in hand or at bank to meet its current liability and the cash ratio gives a better result.

Cash Ratio = Cash / Current Liabilities

Ratio                    2001                    2000                 1999                1998             1997   
Cash ratio      .0629 Times       .0021 Times      .0011 Times      .0019 Times   .0029Times


There is an unparallel cash ratio of BOC Bangladesh Ltd. Some time it is increasing and some time it is decreasing. In 2001 it has increased more than 29 times than the year 2000 because sales have increased more than 11% in that year. But there is a tendency of this firm keeping low cash and more stock.
In this case we can say that management has failed to use cash and it’s a big loss for the company. They must find some way to invest that cash instead of keeping it on hand.

Activity Dimension

Activity ratios reflect the firm’s efficiently in utilizing its assets. The funds of creditors and owners are invested in various kinds of assets to generate sales and profits. The better the management of assets the larger the amount of sales. These ratios are also called Turnover Ratios because they indicate the speed with which assets are being converted or turned over into sales. A proper balance between assets and sales generally reflects that the assets are managed well. There are some ratios under these criteria. They are as follows:

1. Accounts receivable turnover
2. Average collection period
3. Inventory turnover
4. Accounts Payable turnover
5. Accounts Payable turnover in days
6. Fixed asset turnover
7. Total asset turnover

Accounts receivable turnover

The Accounts receivable turnover is a comparison of the size of the firm’s sales and the size of its uncollected bills from customers. If the firm is having difficulty collecting it’s money, it has a large receivables balance and a low ratio. If it has a strict credit policy and aggressive collection procedures, it has a low receivable balance and a high ratio. It measures the effectiveness of the firm's credit policy.

Accounts receivable turnover = Sales / Accounts receivable

Ratio                                                2001                   2000                 1999                1998               1997
Accounts receivable turnover      23.16 Times       28.08 Times      29.75 Times      27.76 Times   32.61 Times

From this analysis we get that the ratio is continuously decreasing from 1999. It means that Account receivable is increasing day by day which is very bad for the company because it has tied up a lot of cash money, which can be invested by the company in other sector. The turn over in 2001 has declined 1.2 times than that of year 2000. It means the company is following lax credit policy. This ratio indicates that the management has failed to use Account receivable efficiently. So the lower turnover means that the company is inefficient in managing it’s Account receivable.

Average collection period

The average collection period provides a rough approximation of the average time that it takes to collect receivables. It compares the receivables balance with the daily sales required to produce the balance. The ratio reflects the average collection period.

Average collection period = 360 days / Accounts receivable turnover

Ratio                                        2001              2000              1999             1998           1997
Average collection period      16 Days          14 Days         13 Days          13 Days      11 Days

As a result of increasing Account receivable turnover average collection period had decreased from 1999. The ratio has declined sharply on 2001 comparing with other tears. Lower ratio means the bad collection period and it is also a cause of lower cash balance. The goal of any company should be increase sale without increasing receivable because it tied up the cash balance and makes ultimate loss for the company.