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Valuation on Oil Service Company Ltd

In: Business and Management

Submitted By nhkashik
Words 2502
Pages 11
We will go for that ratio analysis through which we can go for a comparison of OWS with the industry or other firms to make a correct decision about OWS.

1. Evaluated the firm’s (Oil Well Service Company) Liquidity.

Solution:

We can evaluate a firm’s liquidity status through several ratios. The most important ratio of them is Current Ratio.

To evaluate the liquidity status of the firm (OWS), we have to compare the ratios of the firm with those of the other firms or industry average.

First, we are going to find calculate the required ratios for our evaluation.

Current Ratio = (Current Assets / Current Liabilities)

Here, the Current Ratios of OWS, Robert Morris Associations, and 8-Company Average from 1974 – 1977 are shown in below:

|Year |1974 |1975 |1976 |1977 |
|Current Ratio (OWS) |3.88 |1.08 |1.04 |1.18 |
|Robert Morris Associations |0.90 |1.00 |1.20 |0.90 |
|8-Company Average |1.90 |2.10 |2.30 |2.10 |

If we plot the data of OWS in the graph, we can see the below figure:

[pic]

Fig: Curret Ratio

Evaluation:
Here we can see that the current ratio of OWS in 1977 is better than the competitor Robert Morris Associations whereas the industry ratio at the same time is much higher than that of OWS. But it is not so bad at all. OWS is in the position of fullfilling its short term liabilities efficiently and at a faster rate than it’s competitor does. So, OWS has a satisfactory liquidity status in 1977 and we can see that from 1974 to 1977 it is flactuating in a acceptable level. So, the future liquidity prospect of OWS is not so bad. Moreover, it will be a lot better in the upcoming year.

2. Evaluate the

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