RSM219H1 Lecture Notes - Write-Off, Net Present Value, Current Liability
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RSM219H1 Full Course Notes
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Document Summary
Working capital = current assets current liabilities. Provides a measure of operating liquidity and ability to meet short-term obligations: measured in absolute 24707$, so difficult to compare companies of different sizes. Looking for a positive amount; working capital deficiency is a serious red flag. Ratio #1: current ratio = current assets / current liabilities. Similar to above, but standardizes the measure as a ratio, allowing comparison across companies of different size. When using ratios: always keep in mind the purpose of your analysis (this will determine which ratios to use, and possibly how to adjust the standard ratios) Ratio in isolation is not that useful look for benchmarks. Issues relating to ar are linked to revenue recognition, but are not the same: often, ar is recognized at same time as revenues. Revenues (is: remember, there are other types of receivables. * - collectability is a necessary condition for revenue recognition.
