2.3.2 Liquidity

Question 1

What does a statement of financial position include?

Answer 1

shows assets, liabilities, and net worth of firm

Question 2

Define an asset?

Answer 2

everything that benefits a firm with value

Question 3

Define a liability?

Answer 3

all debts that company owes

Question 4

What are fixed assets?

Answer 4

lasting value of firm e.g. - buildings, machinery and equipment

Question 5

What are intangible assets?

Answer 5

no physical existence

Question 6

Current assets?

Answer 6

items that are sold for cash

Question 7

Share capital?

Answer 7

money put into firm by owner

Question 8

What are reserves?

Answer 8

retained profit and gains from selling assets

Question 9

What is the current ratio mean measure?

Answer 9

ability of firm to meet short term debts

Question 10

Calculation for current ratio?

Answer 10

Current assets - current liabilities

Question 11

What is the acid ratio measure?

Answer 11

shows number of times by which cash and debtors cover short term liabilities

Question 12

Calculation for acid test ratio?

Answer 12

current liabilities

Question 13

3 ways to increase liquidity?

Answer 13

current assets need to be increased
more efficient uses of fixed assets
careful management of accounts

Question 14

What are the 5 stages of the business cycle?

Answer 14

firm buys materials - cash out 
production of goods - cash out 
finished goods - cash out 
goods sold to customers 
debtors pay credit - cash in