35 Liquidity

Question 1

Define liquidity

Answer 1

liquidity shows how quickly a business can access cash in order to meet its short term debts.

Question 2

Define cash and profit

Answer 2

cash is liquid money

profit is the total revenue minus total costs

Question 3

Define statement of financial position/balance sheet

Answer 3

balance sheet is a summary at a particular point in time of the value of a firms assets, liabilities and capital.

Question 4

Define assets and how is it calculated

Answer 4

assets are the resources the business owns and then use to make products and services such as machinery and equipement.

assets = liabilities + capital

Question 5

Define liabilities

Answer 5

liabilities are the debts of the business, in other words what it owes to others.

Question 6

Define capital

Answer 6

capital is the money put into the business by the owners.

Question 7

Define inventories

Answer 7

inventories are stocks and finished goods held by the business.

Question 8

Define non current assets

Answer 8

non current assets are long term resources that will be used repeatedly by the business over a period of time.

Question 9

Define current assets

Answer 9

current assets are resources that will be changed into cash within 12 months, these are liquid assets as they can be converted into cash.

Question 10

Define current liabilities

Answer 10

current liabilities are any sums of money owned by a business that must be repaid within 1 year.

Question 11

Define non current liabilities

Answer 11

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.

Question 12

Define net assets

Answer 12

net assets are calculated by subtracting the value of total liabilities from total assets.

Question 13

Define shareholders equity

Answer 13

shareholders equity provides a summary of what is owed to the owners of the business.

Question 14

Define current ratio and how is it calculated

Answer 14

current ratio gives an idea whether the business would be able to repay its liabilities with its assets.

current assets/current laibilities

Question 15

Define acid test ratio and how is it calculated

Answer 15

acid test ratio is calculated by current assets - inventory/current liabilities

Question 16

Define working capital

Answer 16

working capital is the money needed to pay for the day to day expenses of a business. It is also the money left over after all debts have been paid.

Question 17

Define trade and other payables

Answer 17

trade and other payables is money owned by the business to suppliers and utilities.

Question 18

Define trade and other receivables

Answer 18

trade and other receivables is money owned to the business by customers and any repayments made by the business.

Question 19

Define debt factoring

Answer 19

debt factoring is a when financial institution takes over the administration of a companys receivables. The factor pays the business the money that suppliers owe to it immediatly in return for a percentage.