Liquidity ratios and solvency ratios
Liquidity ratios (37) Ability to satisfy short-term obligations as they come due Should use the following ratios collectively Current ratio (CA/CL) (38) How a company …
BS
Common-size balance sheet
Each item is expressed in terms of percentage of total assets From common-size balance sheet, can evaluate portion of important items Liabilities percentage Working capital …
Components of shareholders’ equity
Owner’s equity Residual interest in assets that remains after subtracting an entity’s liability Include: Contributed capital (31) Amount contributed by equity common shareholders Par value …
Different types of assets and liability and measurement base
Different types of assets and liability and measurement base Current asset (11) Cash and cash equivalents (12) Highly liquid investment, ready to convert to cash …
Current/non-current asset/Liability
Current Non-current Asset – assets that are likely to be converted into cash up within 1 year or operating cycle- Presented in order of liquidity- …
Alternative formats of balance sheet
Classified balance sheet (9) current/noncurrent assets/liability is reported separately useful in evaluating liquidity Liquidity – based format (10) Present assets and liabilities in the order …
Limitation of BS
There are a number of assets and liabilities that do not appear on the balance sheet Employees, reputation…
Use of Balance sheet
To asset a firm’s Liquidity (7): ability to make short-term obligation Solvency (8): Ability to make long-term obligation Ability to make distributions to shareholders Should …
Elements of balance sheets
Balance sheet Report firm’s financial position at a point in time Consist of 3 elements Assets (4): Resource controlled as results of past transactions that …