common ratios to judge the financial stability of the source of the business concern gearing ratio, current ratio and the proportion of the liquid. It shows the debt dependence of the company on the ratio of debt to finance its activities. Likewise, the percentage climbs religion (especially if it exceeds 65 percent of the total funds for most companies), increasing the risk of financial distress. This is the downside of leverage - it increases the financial risks.
measures the current rate of the number of times the current assets of the company cover current obligations. This is a measure of solvency: the company's ability to pay its debts through regular cash cycle, and selling the stock on credit, and debt collection and payment of creditors. Should this ratio typically exceeds 1: 1, and should be closer to 2: 1. It should also be noted that an excess of current assets will result in the use of the assets of the poor.
liquid ratio or quick are more stringent than the financial stability in the short-term measure. It measures the ability of companies to pay current obligations of liquid assets. Liquid assets are cash or near cash resources. In practice it includes cash and liquid assets of banks, securities and short-term receivables and assets that can be easily converted into cash to meet urgent appeals for payment of lenders and suppliers.
usually it accounts receivables are included in liquid assets, because they can be sold to a finance company at a discounted price to collect later from debtors. This is called debt debt. Debt factoring is not common in all countries. Factoring is used religion as a means to manage the cash flow from operations, rather than trying to fund the entity even in receivables. In reaching a liquid assets, and the exclusion of the principle of current assets is the inventory. Because this may take a few months to sell - and then often to customers credit - it could be several months before it is cash from inventory collection. Current liabilities between some of the debt that may not be due to several months may be. These can be excluded in calculating the liquid ratio. One example is the tax payable rolling portion of long-term loans, both of which may not be due for several months. However, it should make such amendments unless you know the dates of payment and more than six months after the balance sheet date.
One common modification (but risky) in the calculation of the liquidity ratio to exclude overdraft of current liabilities. This is not recommended. When liquidity decreases toward (or less) 1: Level 1 (including overdrafts), this is the most likely time that the bank will require a payment - on demand. Thus, it should just be left overdrafts from this account when the company is completely liquid - when it does not matter anyway!
based on these ratios in the statement of financial position, and that they represent only a "snapshot" of the financial stability of the company, taken at one point in time. These percentages can be manipulated by referring payments or delay purchases until the next period, or by customers' bills in advance of delivery. Known as "window dressing clothes", these techniques show improvement in the solvency position of the balance sheet date.
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