BUSS3 Exam Skills - Look Beyond the Theory

A business has an acid test ratio of 0.2:1.On the face of it this spells disaster. The business only has 20p of current assets minus stock for every £1 of current liabilities. The business may have difficulty meeting its short-term payments and may struggle to raise finance due to its inability to pay its debts. That's the theory anyway.But this business is Wal-Mart. This information paints a completely different picture.Wal-Mart is the worlds largest retailer and as such has most of its current assets tied up in its inventory (stock). High inventory is crucial for Wal-Mart because if they do not have an item in stock customers will simply go elsewhere. In addition to this Wal-Mart is a cash generating business and due to its size and scale able to negotiate extremely favourable credit terms.For Wal-Mart, an acid test ratio of 0.2:1 poses no problems. This example illustrates one of the key exam skills needed to succeed in BUSS3 which is application.Look beyond the theory and apply your knowledge to the business you are writing about.