Overton Pty Ltd is a private company that runs a coffee shop. Its owner, Carl, is concerned that the cash flows for the past year have deteriorated and has provided the following abridged versions of Overton Pty Ltd’s balance sheet and statement of cash flows.

Required

Calculate the short‐term cash flow adequacy ratio and the cash flow adequacy ratio for 2019 and 2020 and comment on Overton Pty Ltd’s ability to meet its current and overall obligations to creditors.

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Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity Cash flows from operations Cash flows from investing Cash flows from financing Net increase in cash Beginning cash Ending cash OVERTON PTY LTD Balance Sheet as at 30 June OVERTON PTY LTD Statement of Cash Flows for the years ended 30 June 2020 $ 620000 3 760 000 4 380 000 380 000 3120000 3 500 000 2019 $ 640000 3780 000 4420 000 320 000 3160 000 3480 000 $ 940 000 $ 880000 $ 880000 $ 940 000 2020 $220 000 2019 $ 360 000 (60000) (40 000) (40000) (50 000) 120000 270 000 320000 50 000 $ 440000 $320 000