2.3 Liquidity Flashcards
statement of financial position (balance sheet)
financial doc that summarises net worth+ snapshot of position which shows assets and liabilities
benefits of sfp
source of finance
shows how well managers used resources at disposal
value of business, current assets, stm liabilities, ltm debts, liquidity
current assets
turned in cash within 1year eg inventories, receivables, cash eq
non current assets
fixed assets used to operate + kept for 1yr+
eg vehicles, premises, machinery
current liabilities
debts to repay within 1yr eg overdraft, payable acc
non current liabilities
debts paid 1+yr eg loan
net current assets
current assets- current liabilities > working capital available
net assets
total assets - total liabilities > value of business
total equity
share capital+ retained p
balance w net assets so rep how business is financed
net worth
non current assets+ current A - current liabilities- non c
must be same as total equity
liquidity
measure of how easily assets can be turned into cash for expenditure
ratios= ability to meet stm ratios and how much l is available
importance of liquidity
mgt of income and expenditure= imp to cf and ltm survival
current ratio
current assets/ current liabilities comparison
assess capital to pay stm debts
<1.5= vulnerable and >2= too muc cash unproductive firm
improve current ratio
sell fixed assets, raise share cap, more ltm debt
acid test ratio
current assets- inventories/ current liabilities
severe measure- excludes stock n gurantee to turn into cash quicky
whether u meet liabilities without disposing stocks
1= norm, higher= too much current assets
working capital
current assets- c liabilities
money needed to pay for day to day training eg bills wages aka ncl or assets
answers q if firm had to pay stm debts could it with stm resourcses?
improve liquidity
enc sales, early settlement of debts, sell current stock, credit agrements, delay pmt, overdraft, negotiate add stm loans
