10 - Liquidity Flashcards
1
Q
liquidity
A
the ability of a business to pay its debts in cash when they are due
2
Q
current ratio
A
fompares current assets with current liabiltiies - asseses whether a business has sufficient working capital to pay short term debts
3
Q
current ration =
A
current assets/current liabiltiies
4
Q
acid test ratio
A
doesnt take into account inventories of a business. no guarantee that this stock can be turned to cash so inst included
5
Q
acide test ratio=
A
current assets - inventories / current liabiltiies
6
Q
working capital
A
the money within a business that is needed to pay for day to day running costs such as bills, wages and stock
7
Q
working capital =
A
current assets - current liabiltiies
8
Q
ways to improve liquidity
A
- use overdraft
- negotiate more short term loans
- delay payments
- sell off assets
- encourage cash sales
