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Financial Management
1. Yash Chavan – 407
Patkar-VardeCollege
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Window Dressing :
Window Dressing refers to the art of showing the position of an Organisation at a
better level than the existing one. Itmean true value of the assets & Liabilities are
not shown in balance sheet.
It can be done by following methods :
Provision of inadequate depreciation on fixed assets.
Not providing for doubtful debts on debtors.
Revenue expenditure treated as capital expenditure
Over valuing stock.
Showing the items of slow moving, Obsolete, damage stock etc. At full cost.
Actual Liabilities shown as contingent liability.
Underestimating Liabilities.
Showing fictitious credit sales.
Window Dressing is manipulation of accountin which certain adjustmentis made in
such a way by the management that the financial statement show the position of
company much better and sound then the actual position.
FINANCIAL MANAGEMENT
2. Current Ratio :
Itmeasures the shot- term solvency of the business by comparing the currentassets
with currentliabilities. Italso called as “Working-Capital Ratio”.
ItExpressed as a Pure Ratio.
Currentratio of 2 : 1 is regarded as a standard currentratio.
Under ideal condition, a current ratio of 2 : 1 is considered as Safe.
The Chore committee recommended that 1.33 : 1 currentratio should be attained by
the business enterprises for good liquidity position.
FORMULA :
Current Assets Current Liabilities
Insurance claim Creditors for goods
Due from consignee Bill payable
Bills Receivable Outstanding Expenses
Cash & Bank balance Income received in advance
Temporary loans Sales tax payable
Prepaid expenses Advance from customers
Income tax refund due Short term loans
Current Ratio = Current Assets/Current Liabilities
3. Quick Ratio :
Quick Ratio indicates the immediate solvency position of the company. Italso
indicates very shortterm financial strength, soundness and solvency concern.
ItExpressed as a Pure Ratio.
Quick ratio of 1 : 1 is considered as Standard or Satisfactory.
Quick ratio is a qualitative ratio compared to currentratio as it measures the
immediate ability of a company to meet its most urgentobligations.
FORMULA :
Quick Assets Quick Liabilities
Current Assets less stock Current liabilities less bank overdraft
Prepaid Expenses Cash credit
Excises Income received in advance
Advance tax
Customs
Liquid Ratio = Quick Assets/QuickLiabilities
4. Stock to working Capital :
Its expressed the relationship between the closing stock and the working capital.
Stock is considered as non-quick currentassets and therefore to the extent of stock
in working capital it affects the immediate solvency of concern.
FORMULA :
The ratio Expressed as a pure ratio or as a percentage.
Its essentialfor the smooth functioning of day to day business of an enterprise and
therefore it s essential that funds mustnot be locked-up in moving stock.
Stock to working capital ratio of 1 : 1 i.e. 100% is considered as Standard or
Satisfactory Position.
Stock To Working Capital Ratio = closing Stock / Working Capital x 100.