Notes

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  • Created by: rowena
  • Created on: 02-11-12 04:15
Current Ratio
A current ratio needs to be greater than 1.1.A current ratio of 1.30:1tells us that for every $1 of current liabilities the retailer has $1.30 of current assets. This means that the retailer should be able to meet their debts during the next12 months
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Satisfactory current ratio % / ratio
must be greater than 1.1
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Cause of Satisfactory current ratio % / ratio
(1)Good credit control so low bad debts (2)Good stock control
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Unsatisfactory current ratio % / ratio
Any ratio below 1.1 or above 2.1
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Cause of Unsatisfactory current ratio % / ratio
(1)High accounts receivable-problem of bad debts(2)Too much ventory- may become obsolete RATIO ABOVE 2.1(1)Too much cash is being held in low interest earning accoounts(2)Surplus cash should be invested in higher yield term deposits
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How to improve unsatisfactory current ratio % / ratio
(1)Owner investes more capital in the form of cash(2)d\Decrease drawings(3)Borrow long term
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Liquid Ratio
A liquid ratio of 1.10:1 tells us that for every$1 of liquid liabilitiesthe retailer has $1.10 of liquid assets.This means taht the retailer should be able to meet their immediate debts within the next 1-3 months
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Satisfactory liquid ratio % / ratio
Must be greater than 1.1
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Cause of satisfactory liquid ratio % / ratio
(1)Good credit control so low bad debts(2)Good stock control(3)Limited drawings
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Unsatisfactory liquid ratio
Any below ratio 1.1
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Cause of unsatisfactory liquid ratio % / ratio
(1)High account receivable -problem of bad debts.(2)Too much inventory-may become obsolete.(3)Increase Drawings
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How to improve unsatisfactory liquid ratio % / ratio
(1)Improve credit control measures to reduce bad debts(2)Owner invest more capital in the form of cash.(3)Decrease drawings(4)Have a sale on obsolete stock reduce stock levels.
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EQUITY RATIO
An owners equity of 0.65:1 tells ;us that for every $1 of assets the owner has financed 65 cents.If this ratio falls below 0.5:1 this means that outside liabilities such as bank own a greater proportion of the business than the owner.
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EQUITY RATIO
This could have dire consequences for the owner of the business
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Satisfactory equity ratio % / ratio
Must be greater tahn 50%but not greater than around 80% in order to take advantage of borrowed funds.
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Cause of Satisfactory equity ratio % / ratio
The owner has invested more into their business than outsiders/creditors
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Unsatisfactory equity % / ratio
Below 50%
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Cause of Unsatisfactory % / ratio
The owner does not have enough capital invested into the business.Creditors own more of the business than the owner.
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How to impove unsatisfactory equity ratio % / ratio
The owner(1)Invests more capital (2)Pays off some liabilities
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Other cards in this set

Card 2

Front

Satisfactory current ratio % / ratio

Back

must be greater than 1.1

Card 3

Front

Cause of Satisfactory current ratio % / ratio

Back

Preview of the front of card 3

Card 4

Front

Unsatisfactory current ratio % / ratio

Back

Preview of the front of card 4

Card 5

Front

Cause of Unsatisfactory current ratio % / ratio

Back

Preview of the front of card 5
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