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liquidity (assets (these are items that are owned by an organisation,…
liquidity
assets
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non-current assets are items that can be used repeatedly in the production process that tend to last for more than 1 year such as machinery
current assets are items that are used up in the production process and last for less than one year. e.g. inventories and receivables
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acid test ratio
the current ratio assumes that inventories and receivables are liquid i.e. easy to convert = hard to sell stock
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the ideal is 0.75:1 / 1:1. if the figure is too low the business will run out of cash. if the figure is too high the business will have too much cash = not earning profits
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statement of financial position - describes the finances of a company at a particular point in time, by comparing the items owned by an organisation (its assets) with the amount it owes (liabilities)
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solvency - is a measure of a firm's ability to pay its debts on time. a firm that can meet its financial commitments is described as 'solvent' a firm that cannot = 'insolvent'
working capital - is the finance available for the day-today running of the business, used to pay short-term debts such as wages
business can manage working capital by: minimising stock, keeping customer credit low
the importance of cash: take advantage of business opportunities, reduce variable costs by buying raw materials in bulk + can pay bills