BU121 Lecture Notes - Corporate Finance, Asset, Current Liability
Document Summary
(rule of thumb>2,<4) greater then 2 less then 4. Liquidity = assets that can be converted to cash easily with the liabilities that represent the need for cash. Taken from year ends statement that shows the direction you are going to. Evaluates with working capital management issues and not dealing with. =1. 37 for the current ratio calculated by the balance sheet given to you on the supplementary slides. Acid test/ quick ratio (similar to current ratio) = (average current assets average inventories) / average current liabilities. Nwc (net working capital) to total assets ratio. =(average current assets average current liabilities)/ average total assets. You need to balance the liquidity since having less cash is not a good thing and having too much cash on hand means that you could"ve invested that money in the business to earn even more. Cash burn and increased (rate of increase = 45%) Purpose: to see how much cash we have.
