Balance sheets

Question 1

What is a Balance Sheet.

Answer 1

A balance sheet is a snapshot of the business’ assets and liabilities. This demonstrates a business liquidity (ability to pay debts) which financers require.

Question 2

2 ways to Measure Liquidity:

Answer 2

1-current ratio = current assets divided by current liabilities = x:1.

2-acid test ratio = (current assets - stock) divided by current liabilities = x:1.

Question 3

interpretations of liquidity ratios.

Answer 3

if ratio 1.5/2 = efficient working cap management.

if ratio 1 and below = cash problems.

Question 4

Improving liquidity.

Answer 4

1-improve working cap management by minimising spendings on assets in business like leasing instead of buying equipment
=increases expenses but saes working cap, where business has more capital available for unpredictable problems

2-raising share capital, by raising shares in business, higher investment=business gain finance
however this depends on how much power the owner is willing to dilute.