Accounting 2 - Liquidity and Stability Flashcards
1
Q
What is meant by the term liquidity?
A
Refers to the ability to meets the short term debts as they fall due, which is essential to its survival.
2
Q
What can measure liquidity well?
A
The working capital ratio. Which determines a firms’ current assets to current liabilities to see whether they have sufficient economic resources to pay of debts.
3
Q
What is meant by stability?
A
Refers to the firm’s ability to meets it’s long term obligations.
4
Q
What is a good indicator for stability?
A
The debt ratio, which measures what percent of the firm’s fund are finances through external means.
