The ability of an entity to fulfill its immediate financial responsibilities is referred to as liquidity. Thus, a company's ability to pay off its short-term debt commitments is determined by its liquidity ratio. This is accomplished by comparing the most liquid assets of an organization—those that can easily be converted into cash—with its short-term obligations. When it comes down to it, the higher level of coverage of liquid assets to short-term liabilities is one that is notable.
Below is an analysis of CO2 Solutions Company's cash for the years 2014, 2015, and 2016. A diminish in accounts receivable at June 20th, 2014 of $277,227, by and large, show the lessening in revenues of the accounts receivable as per the eco-ENERGY venture in the Canadian oil sands. A reduction of $34,315 in equipment, plant and net property is prevalently identified with depreciation.
There was an increase of $2,184 in the investment of licenses. According to the use of IAS 38, "Elusive Assets", CO2 Solutions looks at that as an immaterial resource worthy of capitalization built up just once it has achieved a phase where it is prepared to begin the way toward being licensed, and by and large just the expert and documenting charges paid to secure the licenses are promoted.
Analysis of CO2 Solutions Liquidity for the year 2014
Current liquidity ratio= Current Assets/ Current liabilities
Current Assets = 2549326 – 388863=2160463
Current liabilities= 505374
Current liquidity ratio = 2160463/505374
=4.3
This means that for each $1 in current liabilities, the CO2 Solutions has $4.3 in current assets. A liquidity ratio that is better than one to one, is viewed as great. The higher the proportion, the better the financial position of the organization. CO2 Solutions is in better financial position, and the present proportion of 4.3 to 1 shows that they can pay their short-term obligations.
Analysis of CO2 Solutions Liquidity for the year 2015
As at June 2015, there was no revenue for that financial year. There was a revenue total of $388,863 in 2014 that was essentially produced from innovative work joint efforts with CO2Capture Project. The net loss expanded by $3,577,521 mirroring the vast research and Advancement expenditure for the Demonstration Project amid the financial year 2015.
A $803,329 net increment in current liabilities mirrors a higher exchange creditor liabilities balance. These exchange creditor liabilities were considerably paid down in July 2015 after the receipt of assets from the 2015 Private Placement. A $531,624 diminish in non-current liabilities is essentially a consequence of the change in June 2015 of the Convertible Debentures issued in August twenty thirteen, offset by a rise of $166,004 in the refundable contribution.
Liquidity Ratio for the year 2015
Liquidity Ratio= Current Assets/Current Liabilities
= 5180536/803329
=6.4
This means that for each $1 in current liabilities, the CO2 Solutions Company has $6.4 in current assets. Since this liquidity ratio is better than one to one, then it is viewed as great. The higher the proportion, the better the financial position of the CO2 solutions. CO2 Solutions as at June 2015 was in a better financial position, and its present proportion of 6.4 to 1 shows that they could pay their short-term obligations.
Liquidity Ratio for The year 2016
There was no revenue for the financial year ended June 30, 2016. The net loss for the financial year twenty sixteen, diminished by $332,658, or $0.04 per share mirroring a net reduction in development and research expenditures amid the year essentially identified with the fruition of the exhibition venture amid the financial year 2016, offset by increments in Administrative Expenses and Business Development.
A $141,821 net increment in current liabilities reflects an abatement of $602,079 in the exchange creditor liabilities balance offset by $743,900 in extra term loans. The exchange accounts payables were generously paid down in January 2016 after the receipt of stores from the December 2015 public offering and from the returns of the term loans. A $1,071,619 increment in non-current liabilities is basically an aftereffect of the debenture issue in December 2015 and a rise of $72,247 in the refundable contributions.
Computation of Liquidity Ratio for the year 2016
Liquidity Ratio= Current Assets/Current Liabilities
=3380162/945150
=3.6
This means that for each one dollar in current liabilities, the CO2 Solutions Company has three point six dollars in current assets. CO2 Solutions is in better financial position, and the present proportion of three point six to one shows that they can pay their short-term obligations.
The liquidity for CO2 Solutions was fine and increased throughout the three years period. This is attributed to the collaboration of CO2 Solutions and Husky energy which led to the construction of a larger field pilot test. Capital costs were also reduced when in 2015 when CO2 Solutions showed the potential to reduce the size of the CO2 capture equipment.
Missouri-based Akermin, a past adversary of CO2 Solutions in the field of catalyst based carbon catch, has chosen to stop operations and sell its assets to CO2 solutions thus making CO2 one of the main carbon capture company. The geographical environment has been affected since greenhouse gasses emission has been reduced considerably in unconventional oil production.
Conclusion
CO2 Solutions financial position seem bright through the three year period. As the calculation show, the company's liquidity ratio is above one to one, meaning the company has the ability to pay of its debt obligation. Thus, CO2 Solutions solvency of as shown by the liquidity rations is quite satisfactory.
As evident, the company liquidity ratio of 4.3, 6.4, and 3.6, for the year 2014, 2015, and 2016 respectively, show that despite the dip in one of the year (2014), CO2 Solution made good investment with great returns. With the current liquidity ratio is ideal at 3.6 (even though reduced from 6.4) and indicates the company has sufficient liquid funds.
Moreover, it is noteworthy to state that the company's level of coverage of liquid assets to short term liability is strong, and thus, the company next investments may grow well. Other than that, the company has been able to invent itself and improve its liquidity ratio while at the same time, reduce the carbon emissions to the environment.
The CO2Capture Project, eco-ENERGY venture, and the collaboration between CO2 Solutions and Husky energy, brought in good returns for the company and shows the right direction the CO2 Solution is heading towards. The reduction of the greenhouse emission while improving the sales, investment levels, and the company's confidence levels is a great step towards the company's stability.
Moreover, the high liquidity ratio shows that CO2 Solutions is following a conservative policy in regards to the company's working capital requirement (Maheshwari, 2012). In fact, that is the reason as to why the company is able to divert some of the working capital to meet it long-term investment requirement of their business.
Reference
Maheshwari, S. N. (2012). A Textbook of Accounting for Management, 3rd Edition (pg. 5-23). Vikas Publishing House.
