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Key financial ratio’s   liquidity
 

Key financial ratio’s liquidity

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Don't just file those financial accounts in a drawer - an occasional series of business tips

Don't just file those financial accounts in a drawer - an occasional series of business tips

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    Key financial ratio’s   liquidity Key financial ratio’s liquidity Presentation Transcript

    • Key financial Ratio’sThe first in an occasional series of business tips - Liquidity
    • Acid Test• This is a simple ratio to provide a business a quick check to ensure they can cover their current liabilities [money owed/bills to pay] with their current assets [money in the bank, stock etc.]• How? - Divide the Current Assets by Current Liabilities.• Ideally the ratio should be greater than 1:1.
    • Working Capital Requirement - WCR• Increases in WCR will be caused by increasing turnover or any changes that causes stock and debtors to rise and/or credits to fall.• Why? – Not chasing debtors, bulk buying stock, etc.• WCR = Stock + debtors – creditors.• Ok now what?
    • Working Capital Requirement & Funding• Increases in WCR or buying new assets can only be funded from four sources –• Borrowing from a lender.• Money put in by the business owners/investors/shareholders.• Profits retained from past trading.• Selling an asset.
    • Any questions ? I am Neil LennonI am a business improvement consultant and my company isHelping your business make gains critical to your success 07771 962785