# Analyzing Liquidity Ratios & Operating Leverage | TechNova
> Learn how to calculate Current Ratio, Quick Ratio, and Degree of Operating Leverage (DOL) using this management accounting case study of TechNova Inc.

Tags: management-accounting, liquidity-ratios, operating-leverage, financial-analysis, current-ratio, dol-calculation, business-finance
## Liquidity Ratios & Operating Leverage Analysis
* **Presenter:** Honey Rajkumar Dewett
* **Subject:** Management Accounting (SYBAF+CMA)
* **Entity:** TechNova Inc., a publicly listed hardware manufacturer.

## Financial Data Extract (FY 2023 vs FY 2024)
* **FY 2023:** Current Assets: $150M | Current Liabilities: $100M | Inventory: $40M
* **FY 2024:** Current Assets: $170M | Current Liabilities: $120M | Inventory: $50M

## Liquidity Ratio Calculations
* **Current Ratio (FY 2024):** 1.42x (A slight decrease from 1.50x in 2023).
* **Quick Ratio (FY 2024):** 1.00x (Down from 1.10x in 2023).
* **Analysis:** The company holds more inventory, resulting in a tighter liquidity position while remaining solvent.

## Operating Leverage Analysis
* **Sales Growth:** Increased from $500M to $550M (+10%).
* **EBIT Growth:** Increased from $80M to $100M (+25%).
* **Degree of Operating Leverage (DOL):** 2.50x.
* **Key Finding:** TechNova has a high fixed-cost structure; a 1% sales increase drives a 2.5% increase in EBIT.

## Conclusion
* TechNova is prioritizing infrastructure growth over cash preservation. 
* A DOL of 2.5x indicates high upside potential during growth but significant risk if sales decline.
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