Balance Sheet (statement of financial position)

Question 1

Order of Information on Balance sheet

Answer 1

Assets (Current, Investments, PropertyPlantEquipment, and intangibles)

Liabilities and Shareholders Equity
Current, long-term

(Equity)
Ordinary share Capital
retained earnings

Question 2

Liquidity Ratios

Answer 2

Current Ratio= current assets/curr liabilities

Quick ratio (acid test)= quick assets/current liabilities
*determines solvency

Question 3

Financing Ratios

Answer 3

Debt to Equity: total liabilities/shareholders equity

*compares resources provided by creditors with resources provided by owners

Question 4

What is financial Leverage

Answer 4

when a company borrows and as a result gains money (greater than that of the borrowed) as a result of the financial stimulation.
Therefore, a company can provide its shareholders with a total return higher than it could achieve by employing equity funds alone.