35 Liquidity Flashcards
Define liquidity
liquidity shows how quickly a business can access cash in order to meet its short term debts.
Define cash and profit
cash is liquid money
profit is the total revenue minus total costs
Define statement of financial position/balance sheet
balance sheet is a summary at a particular point in time of the value of a firms assets, liabilities and capital.
Define assets and how is it calculated
assets are the resources the business owns and then use to make products and services such as machinery and equipement.
assets = liabilities + capital
Define liabilities
liabilities are the debts of the business, in other words what it owes to others.
Define capital
capital is the money put into the business by the owners.
Define inventories
inventories are stocks and finished goods held by the business.
Define non current assets
non current assets are long term resources that will be used repeatedly by the business over a period of time.
Define current assets
current assets are resources that will be changed into cash within 12 months, these are liquid assets as they can be converted into cash.
Define current liabilities
current liabilities are any sums of money owned by a business that must be repaid within 1 year.
Define non current liabilities
non current liabilities relate to long term loans and any other money owned by the business that does not have to be repaid for at least 1 year.
Define net assets
net assets are calculated by subtracting the value of total liabilities from total assets.
Define shareholders equity
shareholders equity provides a summary of what is owed to the owners of the business.
Define current ratio and how is it calculated
current ratio gives an idea whether the business would be able to repay its liabilities with its assets.
current assets/current laibilities
Define acid test ratio and how is it calculated
acid test ratio is calculated by current assets - inventory/current liabilities
