Liquidity 2.3.2 Flashcards
what does the statement of comprehensive income measure
the business performance over a given period of time (compares the business’ income against the cost of goods and expenses)
what is the statement of financial position
a snapshot of the business’ assets (what it owns or is owed) and liabilities on a particular day - usually the last day of the financial year
what are non-current assets (and give examples)
fixed, intangible assets that a business has owned for over a year such as brand name, land, customer base etc.
what are current assets (and give examples)
assets that a business keeps for less than a year such as cash, stock, debtors - a business needs enough current assets to pay their current liabilities
what are current liabilities (and give examples)
current debts that a business has a year to pay such as creditors, employees, bank overdrafts
what are non-current liabilities (and give examples)
long term debts that a business has time to pay off like loans and mortages
what is another name for net current assets
working capital
how to calculate net current assets
current assets - current liabilities
how to calculate net assets employed
non-current assets + net current assets
how to calculate net capital employed
non-current liabilities + total share holder’s equity (share capital + retained profit)
what does liquidity assess
whether a business has sufficient cash or the equivalent current assets to pay its debts
how to calculate the current ratio to help liquidity
current assets / current liabilities
what do the results of the current ratio suggest about the business
target ratio: 1.5 - 2
low ratios below 1 indicate cash problems
high ratios above too suggest too much working capital
how to calculate the acid-test ratio to help liquidity
(current assets - stock) / current liabilities
