FIN 3901 Lecture 3: Chapter 3
Document Summary
Internal uses: performance evaluation (compensation and comparison between divisions, planning for future (guide in estimating cash flows) External uses: creditors, supplies, customers, stockhoders. Common size balance sheets: all accounts = % of total assets. Common size income statements: all line items= % of sales or revenue. Useful for: comparing financial info year to year, comparing companies of different sizes, particularly within same industry. Measure if short term assets cover short term liabilities. Short term liquidity: current ratio= current assets. Number over 1 is good because then your assets cover your. But don"t want too big of a number because then the firm is sitting on too much assets and should be doing something with the money. Apple is sitting on too much cash and stockholders are upset: quick ratio= (current assets inventory) Says that not all current assets are the same. A dollar in cash, accounts receivable, inventory are all different.
