2.3.2 liquidity Flashcards Preview

A level business theme 2 > 2.3.2 liquidity > Flashcards

Flashcards in 2.3.2 liquidity Deck (16)
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1
Q

what is a balance sheet?

A

a legally required financial document that summarises the net worth of a business

2
Q

what is within a balance sheet?

A

assets and liabilities

3
Q

what does the balance sheet show a business?

A

the way the business has raised its capital and uses of it

4
Q

define liquidity

A

liquidity s the ability to pay debts and liabilities

5
Q

what does the current ratio measure?

A

ability of a business to meet short-term debts

6
Q

what is the calculation for current ratio?

A

current assets
_______________
current liabilities

7
Q

what does the acid test ratio measure?

A

compares a business’s most short term assets to its most short term liabilities to see if a company has enough to pay its immediate liabilities

8
Q

calculation for acid test ratio?

A

current assets - current liabilities
___________________________
current liabilities

9
Q

what are current assets?

A

assets which will be used within a year

e.g stocks, debts

10
Q

what are non-current assets?

A

assets that will be a part of the business for over a year

e.g vehicles, properties

11
Q

what are current liabilities?

A

debts that a business needs to paid within a year

e.g overdraft, creditors

12
Q

what are non-current liabilities?

A

debts that a business has more than one year to repay

e.g long term loans

13
Q

what are intangible assets?

A

no physical existence

e.g brand name, patents, trademark

14
Q

define working capital?

A

is the amount of money needed to pay for day to day expenses of the business

15
Q

calculation for working capital?

A

current assets - current liabilities

16
Q

how can you improve liquidity?

A
  • sell off current assets
  • encourage early settlements of debts
  • encourage cash sales
  • switch to long term sources of finance