Key Terms - Theme 2 (Liquidity) Flashcards

1
Q

What is liquidity?

A

The availability of liquid assets to a market or a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a Statement of financial position/balance sheet

A

A statement showing a business’ financial position at a certain point in time, providing a summary of its assets, liabilities and capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are assets?

A

The resources owned by a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are liabilities?

A

The debts of a business, what it owes to others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is capital?

A

The money put into a business by owners as well as shareholders and investors

wealth in the form of money or other assets owned by a person or organization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Non-current assets

A

Long-term resources that are used frequently by a business (e.g. land, vehicles, machines, tools)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Current assets

A

Assets that are changed into cash within 12 months (easily turned to cash)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Current liabilities

A

Any money owed by a business that must be paid back within a year (e.g. loans, payables, trade, tax)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Non-current liabilities

A

Money owed by the business but doesn’t have to be paid back within a year (e.g. long-term bank loans, mortgages, company pension funds)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Net assets

A

Calculated by the value of of total liabilities from total assets. This will be equal to the shareholder’s equity (value of shares) at the bottom of the balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Shareholders’ equity

A

Provides a summary of what is owed to the owners of the business (e.g. share capital, retained earnings)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Current ratio calculation

A

Current ratio = current assets ➗current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is current ratio

A

This is a liquidity ratio and focuses on the current liabilities and assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Acid test ratio calculation

A

Acid test ratio = (Current assets - inventories) ➗ current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is acid test ratio

A

A more severe test of liquidity. This is because inventories (stocks) aren’t closed as liquid resources. Stocks can become obsolete therefore are excluded when calculating the ratio.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Working capital

A

The money needed to pay for the day-to-day trading of a business

17
Q

Working capital calculation

A

Working capital = current assets - current liabilities

18
Q

What is a liquid asset?

A

A liquid asset is a reference to cash on hand or an asset that can be readily converted to cash