BSB110 Study Guide - Final Guide: Current Liability, Net Profit, Accounts Payable
Document Summary
Measure the short-term ability of an entity to pay its debts and meet unexpected needs for cash. Important to bankers, suppliers and other short-term creditors: current ratio. Expresses the relationship of current assets to current liabilities i: widely used for evaluating an entity"s short term debt paying ability. A high current ratio indicates that the business has sufficient current assets to maintain normal business operations and pay their current liabilities. A high ratio is considered favourable to creditors, but may indicate excessive investment in working capital items that may not be producing profits. A low current ratio may indicate inability to meet short-term debts in an emergency iii. iv. v: quick ratio, measures an entity"s immediate short term debt paying ability ii. iii. Excludes inventory and prepaid assets which are the least liquid current assets iv. v. vi. vii. The quick ratio tells us whether the entity could pay all its current liabilities if they came due immediately.
