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Business March 05 2013.docx

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Laura Allan

Business March 05 2013 Liquidity = assets that can be converted to cash easily with the liabilities that represent the need for cash -taken from year ends statement that shows the direction you are going to -which shows long term trends -evaluates with working capital management issues and not dealing with Current Ratio =average current assets/ average current liabilities (rule of thumb>2,<4) – greater then 2 less then 4 =1.37 for the current ratio calculated by the balance sheet given to you on the supplementary slides Acid Test/ Quick Ratio (similar to current ratio) -measure of really liquid assets = (average current assets – average inventories) / average current liabilities .62 as the answer but double check Rule of thumb >1 NWC (net working capital) to total assets ratio =(average current assets – average current liabilities)/ average total assets -higher the percentage the greater the liquidity 14.7 % as the answer You need to balance the liquidity since having less cash is not a good thing and having too much cash on hand means that you could’ve invested that money in the business to earn even more Cash burn and increased (rate of increase = 45%) -purpose: to see how much cash we have Outcome: only one month of cash to spend left Cash built has increased as well (rate of increase = 35%) Cash burn impact = investment (since we made a 50 000 investment) Receivable is quite high as well (which we are lending too much out) Conversion Period Ratios -the avg time in days required for non cash current assets and selected current liabilities to create or demand cash -the fast the money converted into cash = the more liquidity Operating cycle -how long is take to buy the raw materials and actually sell is and collect the money on it inventory-to-Sale Conv
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