RATIO
2011
2010
2009
CURRENT RATIO
1.90
2.14
1.60
CURRENT CASH DEBT
COVERAGE RATIO
0.65
0.49
0.73
INVENTORY TURNOVER
0.67
0.45
0.45
ACCOUNTS RECEIVABLE TURNOVER
1.75
1.45
1.21
Company Name: Eli Lilly
Examining Eli Lilly’s current ratio over the 3 years will show an initial increase from 1.6 to 2.14, a significant rise, then a year later it drops back down to 1.9 (still higher than the 2009 ratio). So I would say the liquidity, pertaining to this ratio is on an upward slope. However, viewing the current cash debt coverage ratio will lead to the conclusion that, on an average day, the company is on somewhat of a downward liquidity slope. Keeping in mind that the CCDC ratio is meant to correct the oversights of the current ratio, it would seem that the current ratio for Eli Lilly is misleading.
Moreover, Eli Lilly’s inventory turnover suggests that, over the span of 3 years, it sells out its inventory more liquidly than previous years. This ratio was stagnant through 2009 and 2010, then in 2011 it increased by 66%.
Pertaining to liquidity of receivables, Eli Lilly has been increasing its times from 1.21 to 1.45 to 1.75. Meaning the company’s average collection period is decreasing. From this point of view, we can say that Eli Lilly’s liquidity is increasing.
Overall, the liquidity position for Eli Lilly Company is improving. In assessing the liquidity ratios separately we can see that there is most support for the conclusion that the company is more liquid in 2011 than it was in 2009.