ACC 221 1st Edition Lecture 39 Outline of Previous Lecture Section 38 Red Company Chapter 5 Chapter 5 o Liquidity indicators o Statement of cash flow indicators o Equity investor indicators Outline of Current Lecture Section 39 Red Company Chapter 5 Chapter 5 o Liquidity o Balancing Act o Keeping Cash Current Lecture Section 39 Red Company Chapter 5 cont Chapter 5 cont o 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 inventory o 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 liquidity o 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 loans
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