2.3.2 liquidity Flashcards
what is a balance sheet?
a legally required financial document that summarises the net worth of a business
what is within a balance sheet?
assets and liabilities
what does the balance sheet show a business?
the way the business has raised its capital and uses of it
define liquidity
liquidity s the ability to pay debts and liabilities
what does the current ratio measure?
ability of a business to meet short-term debts
what is the calculation for current ratio?
current assets
_______________
current liabilities
what does the acid test ratio measure?
compares a business’s most short term assets to its most short term liabilities to see if a company has enough to pay its immediate liabilities
calculation for acid test ratio?
current assets - current liabilities
___________________________
current liabilities
what are current assets?
assets which will be used within a year
e.g stocks, debts
what are non-current assets?
assets that will be a part of the business for over a year
e.g vehicles, properties
what are current liabilities?
debts that a business needs to paid within a year
e.g overdraft, creditors
what are non-current liabilities?
debts that a business has more than one year to repay
e.g long term loans
what are intangible assets?
no physical existence
e.g brand name, patents, trademark
define working capital?
is the amount of money needed to pay for day to day expenses of the business
calculation for working capital?
current assets - current liabilities
