FIN-3403 Study Guide - Midterm Guide: Startup Company, Quick Ratio, Current Asset
Document Summary
The quick(or acid-test) ratio inventory is often the least liquid current asset. Note that using cash to buy inventory does not affect the current ratio, but it does reduce the quick ratio. Remember nwc is frequently viewed as the amount of short-term liquidity a firm has. For the interval measure, don"t forget to divide the annual operation costs by 365 to make average daily costs. The interval measures how much longer a firm can keep running if cash inflows were to stop. Can also use the interval measure for new and start-up companies, the measure indicates how long the company can operate until it needs another round of financing. The average daily operating cost for start-up companies is often called the burn rate the rate at which cash is burned in the race to become profitable. Intended to address the firm"s long-term ability to meet obligations; or its financial leverage.
