MGMD01H3 Lecture Notes - Balance Sheet, Overdraft, Current Liability
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Feb 7th- Management Lecture
- One way to determine “wealth” or “financial standing” is to consider:
What possessions do I own?
What is the value of my property?
How much “stuff” have I got?
Balance sheet: Shows the quantity (value) of your material possessions
- Balance Sheet is like a snap shot.
Shows the possessions of business:
Balance Sheet shows their value.
- Balance sheet shows all the things that a business owns
- Through the liabilities and equity- shows if its bought by taking out a loan or by selling things
- Balance sheet shows what you got, and where you got the money to pay for these things
- Current asset- hope to turn into cash in under a year
- Current liability- must pay in under a year
- Overdraft is a synonym for line of credit
- Liquidity- the ease and speed with which an asset can be converted into cash
- Why it matter: at the end of the day- we want $$. Machinery and buildings are a store of $$, But
cant be used to buy things
- Liquidity is important because it has bills to pay on a day to day basis- that’s why we care about
current assets and current liabilities
- When assets are likeyly to become cash
- When liabilities must be paid
- Current asets: assets you hope/expect to turn to cash in under a year
- Current assets- cash is perfectly liquid, AR, inventory, raw materials
- Working capital- current assets (minus) the current liabilities
- Why it matters: you want to know the difference between your cash inflows and your cash
outflows to oay your debts over the next year
- Leverage- the ability to vborrow $$ to buy things why it amtters: borrowing allows us to buy
useful and productive assets0 but borrowing has costs
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