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MU ACC 221 - Red Company: Chapter 5 Cont.
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ACC 221 1st Edition Lecture 39Outline of Previous Lecture- Section 38: Red Company: Chapter 5 Chapter 5o Liquidity indicatorso Statement of cash flow indicatorso Equity investor indicatorsOutline of Current Lecture - Section 39: Red Company: Chapter 5 Chapter 5o Liquidityo Balancing Acto Keeping CashCurrent Lecture- Section 39: Red Company: Chapter 5 cont. Chapter 5 conto Liquidity  Any company that is for profit aims to create a return on investment for owners and investors- Before getting a return, company must be able to pay all of their bills Liquidity – the ability of a company to pay its bills in short term; the ability to pay current liabilities with current assets- If a company is not very liquid, investors and owners do not have to even worry about DuPont, because they will have no return- Working = more liquid The more current assets there are, the greater the ability to pay liabilities- Quick Ratio does not include inventoryo Balancing Act Too high, more assets will diminish the financial performance of the company, not allocating funds effectively Too low, company cannot pay current liabilities Current ratio - $1.50 good liquidity- $3 too high liquidity These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Quick ratio- $1 or more is good liquidity- Conservative estimate on liquidityo Keeping cash Moving cash quickly from inventory, to accounts receivable, to cash is good, because your money is not being held up and is turning into cash quickly.  The longer you hold on to cash and hold off payments, the better. This way you will have more assets at your disposal, and will be less likely to have to take


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MU ACC 221 - Red Company: Chapter 5 Cont.

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