AFM101 Chapter Notes - Chapter 10: Current Liability, Financial Statement, Remittance

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AFM101 Full Course Notes
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Liabilities: debts or obligations arising from past transactions that will be paid with assets or services. When liabilities first recorded, measured in terms of current cash equivalent. Current liabilities: short-term obligations that will be paid within the normal operating cycle or year, whichever is longer. Ratio and comparisons: analysts use the current ratio as an indicator of the amount of current assets available to satisfy current liabilities. Current ratio = current assets / current liabilities. But to high means inefficient use of resources. If significant funds tied in assets may be misleading. With high current ratio may still have liquidity problems; can be manipulated by say paying creditors just before period end. Important because both managers and financial analysts assess health and profitability of company with this. Too little; unable to meet obligations with creditors. Too much; tie up in unproductive assets and incur additional costs (ie inventory) Credit purchases of goods and services to meet basic operation needs.

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