BU121 Lecture Notes - Corporate Finance, Asset, Current Liability
Document Summary
Compares assets the can be quickly converted to cash with liabilities that represent near-term needs for cash. Having sufficient current assets coming into pay current liabilities. = average current assets / average current liabilities. = 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 the higher the percentage the greater the liquidity. Working capital = current assets current liabilities. Measure the average time in days required for non-cash current assets and selected current liabilities to create or demand cash. The faster assets can be converted into cash, the greater the liquidity (other things being equal) Measures the time it takes to purchase raw materials, assemble a product, book the sale, and collect on it. Inventory-to-sale conversion period: how long it takes to convert inventories into sales, = average inventory/(cost of goods sold/365)
