The paper "Business Performance for Severn Trent" is a perfect example of a case study on finance and accounting. The company’ s performance has been significantly influenced by the subdued growth that the world economy has experienced. In addition, the world economy has worsened due to inappropriate monetary and fiscal policy actions among the developed countries. In the recent past, signs of improvements have been noted, specifically in the euro area. Most developed countries continue to register growth in their Gross Domestic Product. The World Gross Product (WGP) has set a 3.0% and 3.3% growth baseline for 2014 and 2015.
The baseline forecast will be influenced by the monetary and fiscal policy actions, the exchange rates, and the international oil prices. All companies are expected to take advantage of the policy actions to achieve the WGP. In addition, there exists a sense of harmonization among different companies that dictate the cyclical movements in growth (World economic situation and prospects 2014). Severn Trent The current ratio and quick ratio indicate that Severn Trent can pay its current debts using either the current assets or assets that can be readily converted into cash.
However, the liquidity ratios indicate a downward trend from 2013 to 2014. The trend can be attributed to the current monetary policy action to reduce the cost of borrowing by lowering the interest rates. The company’ s liabilities increased from £ 581.0m to £ 655.7m to indicate the incorporation of leverage in the capital structure. In addition, additional leverage means that creditors are aware of the current financial situation, and acknowledges the liquidity status for Severn Trent. Investors may seek an explanation for the trend depicted by the cash ratio.
Besides the company adding a significant amount of leverage in its capital structure, the cash and cash equivalents have been reduced within the two-year period. This indicates that the company does not keep most of its retained earnings in form of cash and cash equivalents.
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