BU227 Lecture Notes - Lecture 10: Current Liability, Interest Expense, The Employer
Document Summary
Liabilities: debts/obligations arising from past transactions that will be paid with assets or. Non-current liabilities include all other liabilities: liquidity is the ability to pay current obligations. An old guideline was between 1 and 2. Analysts recognize that managers can manipulate the current ratio by engaging in particular types of transactions just before the close of the fiscal year. Paying creditors immediately prior to the preparation of financial statements. Financial position ratios and debt contracts: when firms borrow money, they agree to make specific payments of interest and principal in the future. Lenders impose these conditions to ensure that the borrower does not increase debt relative to equity, which increases the borrower"s financial risk ex: maintain a minimum specified current ratio and a maximum debt-to-equity ratio. In particular cases, it may not be possible to provide a reasonable estimate of a potential future liability that is contingent on a future event.
