liquidity Flashcards
liquidity
ability of a business to turn assets into cash
which assets are least liquid
property and specialist machinery
which assets are most liquid
stock
where are the least liquid assets ordered on a balance sheet
at the top
balance sheet
document showing what a business owns
assets
what a business owns
liabilities
what a business owes
what is a balance sheet a snapshot of
what a business is worth at a particular time
who uses it to judge the financial position of the business
shareholders, lenders, suppliers
which companies must legally publish a balance sheet
LTD’s and PLC’s
limitations of balance sheet
value stated may not be what assets sell for
intangible may include goodwill which is difficult to price
static snapshot of one day and can easily change
uses of balance sheet
evaluate performance of business
evaluate potential to investor
summary valuation of business
current ratio
current ratio/ current liabilities
where does a business want it’s current ratio to be
1:5:1- 2:1
what does 1:5:1 (current ratio) mean for a business
if it is below then it could be a problem however retail operate at 1:1 due to fast moving stock
