liquidity

Question 1

what is meant by liquidity

Answer 1

ability of a firm to pay its bills

Question 2

what is a statement of financial position

Answer 2

accounting statement thatshows an organisation of assets and liabilities on the last day of the financial year

Question 3

what is current ratio

Answer 3

current assests/ current liabilities
less than 1:1 is bad
ideal is 1.5:1
any more than 1.5 is bad as it shows that business has too much resources tied up in unproductive assets

Question 4

what is asset test ratio

Answer 4

current assets - stock/ current liabilities
ideal is 1:1
below this indicates that busness may have difficulties meeting debts

Question 5

what are ways to improve liquidity

Answer 5

selling under used assets 
raising more share capital
increasing long term borrowing 
postponing planned investments
improve management of capital

Question 6

how can you control working capital

Answer 6

minimising stock
keeping consumer credit as low as possible
trying to get as much credit from suppliers
getting goods to the market in the shortest time possible
minimising spending on fixed assets

Question 7

what are the implications of having to little working capital

Answer 7

business may fail as it cannot pay its debts
may not be able to buy supplies or buy in bulk therefore increasing unit costs
business do not have enough money to develop