BU387 Chapter Notes - Chapter 5: Debt Service Coverage Ratio, Retained Earnings, Longrun
Document Summary
The balance sheet is useful for analyzing the company"s liquidity, solvency, and inancial lexibility. Liquidity looks at the amount of ime that is expected to pass unil an asset is realized or unil a liability is paid. Solvency refers to an enterprise"s ability to pay its debts and related interest. Financial lexibility measures the ability of an enterprise to take efecive acions to alter the amounts and iming of cash lows so it can respond to unexpected needs and opportuniies. Many assets and liabiliies are stated at their historical cost the informaion may be less relevant in comparison to what the current fair value would be. Judgements and esimates are used in determining many of the items reported in the balance sheet. The balance sheet necessarily leaves out many items that are of relevance to the business but cannot be recorded objecively.
