questions to be asked

Question 1

Can the enterprise pay its short-term liabilities?​

Answer 1

What to look for – calculate the new current assets (current assets – current liabilities)​

What it means – if the net current assets figure is negative the business may not have enough cash to pay its long term debts.​

Possible actions to take – increase sales, reduce credit terms to customers, sell off fixed assets, reduce expenses.​

Question 2

Can the enterprise take a long-term loan to help grow the business?​

Answer 2

What to look for – the figure for long term liabilities​

What it means – if long-term liabilities are large, the business may find it difficult to get additional business finance. ​

Possible actions to take – sell of fixed assets or use cash to pay off some long-term loans.

Question 3

What is the value of debtors?

Answer 3

What to look for – debtors in current assets​

What it means – if the figure is large compare with other current assets, there may be a risk that some customers will not pay the money they owe to the business. ​

Possible actions to take – reduce the amount of trade credit provided to new customers; chase up customers who owe money.​

Question 4

Has the enterprise made a profit?​

Answer 4

What to look for – the figure retained profit​

What it means – compare the figure with the retained profit from the previous year – has it increased or decreased?​

Possible actions to take – increase sakes, reduce the cost of sales, reduce expenses.​