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2.3 managing finance - Coggle Diagram
2.3 managing finance
liquidity
statement of financial position shows value of a business' assets and liabilities on a specified date
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terms
non current are long term assets things worth money but unlikely to turn these assets into cash in next 12 months eg buildings, machinery and equipment
current assets are things that are gonna become cash in the next 12 months. cash in the bank, stock/inventories, receivables (money owed by customers)
current liabilities are short term debts. payables (to suppliers), loans, tax etc. owed within the next 12 momths
non current liabilities are long term debts. long term loans, mortagages etc. usually taken out to pay for long term assets
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current ratio = current assets/liabilities. REPRESENT as x:1. figure between 1.5 and 2 is ideal. u want more assets than liabilities as u will have more money turning into cash than cash going out. high figure can mean ur inefficient
acid test ratio = (current assets-inventories)/current liabilities = x:1. YOU TAKE AWAY STOCK because it is the least liquid asset so it might not always be sold which makes current ratio useless
managing working capital. current assets - current liabilities (this is the cash that we spend and receive day to day ie current assets and current liabilities)
profit
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cash is immediate, prfit is over time. profit is just about revenue and costs whereas there are other ways of gaining cash and spending cash (eg bank loan)
business failure
internal causes
lack of cash flow, poor planning, poor marketing, poor leadership and employment issues
external causes
economic changes, lack of economic activity, changes in tastes and trends, legislation could impact products or production
