Liquidity – Flashcards

Everything that could be of benefit to an organisation Can be given the money value

Include all debts that must be repaid at sometime in the future

Assets Change debtors into cash

Inventory, debtors and cash assets that the business has for a short period of time it will be used and then sold debtors will pay up these items become cash

The same even when debtors pay back

Cash or cash equivalents and other assets that can be easily converted into cash

Assets that can not be easily converted into cash

Because of a lack of ready and willing investors or speculators to purchase the asset.

A substantial loss in the value of the items

May be unable to pay its bills, quickly leading them to become insolvent

The assets, liabilities and net worth of a business on a given date

Particularly useful in highlighting liquidity problems

It is dependent on the amount of current asses ( particularly cash and trade ) that a business has on hand to pay its current liabilities

Current assets - Current liabilites

Current assets need to be increased or current liabilities need to be reduced

The number of times by which liquid assets exceed current liabilities

The number of times by which liquid assets exceed current liabilities, but minuses stock from the list of liquid assets because inventory may not be easy to sell in a crisis

Current Assets / Current Liabilities ( the answer is expressed as a ratio e.g. 1.02 )

Healthy for businesses, 1.5 is usually considered to be acceptable

Current Assets - Stock / Current Liabilities ( the answer is expressed as a ratio )