ADMS 3585 Lecture Notes - Lecture 5: Retained Earnings, Cash Flow Statement, Sinking Fund
11 Apr 2017
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Document Summary
Company insider might manipulate information to make earnings look better or worse for strategic reasons. Net income must not be higher than cash flow from operations. Creditor often rely on sfp to assess a company"s liquidity and its ability to service debts. Review if company"s long-term debts and shareholder"s equity help determine solvency level. Basis for calculating rates of return on invested assets and for evaluating the enterprise"s capital structure. Also used to assess business risk and future cash flow. Sfp is useful for analyzing a company"s liquidity, solvency, and financial flexibility: liquidity- depends on the amount of time that is expected to pass until an asset is realized or until a liability has to be paid. Certain ratios help assess overall liquidity, including the current ratio, quick or acid test ratio, and current cash debt coverage ratio. The liquidity of certain assets, such as receivables and inventory, is assessed through turnover ratios.
