Answer
The company appears to have negative liquidity and reasonable financial flexibility. Its current cash debt coverage ratio is 1.2 ($1,200,000\div1,000,000$), which shows that it can’t pay off its current liabilities in a given year from its operations. On the other hand, its cash debt coverage ratio is good at .80 ($1200,000\div1,500,000$), which shows that the company can pay off approximately 80% of its debt out of its current operations.
Work Step by Step
Though the company has unfavorable liquidity, it can afford to pay off 80% of its debt from current operations, and this shouldn’t be bad in business since the 20% can probably be obtained by liquidation of some class of assets without having to shut down the organization.
