2.3 Liquidity Flashcards
(14 cards)
What is liquidity
The ability of the firm to pay off its debts
What does a statement of financial position show?
Assets and the liabilities i.e debts at a single moment in time
What does the income statement show
Assets and the liabilities i.e debts over a period of time.
what are the 3 liquid in order of liquidity
Cash
Trade recievables
Inventory
What are examples of current assets?
Inventory, cash and trade recievables
What are some examples of non curent assets
Intangible asset e.g. loyalty
Property
What are some current liabilities
Trade and other payables
Tax liabilities
Debts
What are some non current liabilities
Loads
How to calculate current ratio
current assets / current liabilities
What does the current ratio show
How many times liquid assets exceed current liabilities
What is the desired current ratio
1.5:1 - 2:1
What is the acid test ratio
The number of times cash and debtors cover short term liabilities
How to calcualte acid test ratio
(Current assets - stock) / current liabilities
What is the ideal ratio for the acid test ratio?
1:1
