tailieunhanh - Accounting and Finance Revision Notes_7

Tham khảo tài liệu 'accounting and finance revision notes_7', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Evaluating the Operations of the Business SECTION III Fast food outlets therefore turn over inventory at a tremendous rate and generate continuous streams of cash. At any one point the company may not have large amounts of cash on hand if it is using cash to retire longer-term debt or to acquire additional fixed assets. By comparing the company s own historic trend in the current ratio and examining those ratios with other fast food outlets you can perhaps see that a 1 4 ratio may be even better than a 1 2 ratio. The traditional rule of thumb may not be applicable or representative of the fast food industry. The point of this example is that you should consider those ratios that make sense for the business give usable management information and can be obtained on a timely basis. Figure shows a balance sheet and statement of earnings that will be used to demonstrate the financial ratios. Types of Financial Ratios Liquidity Ratios Liquidity ratios give an indication of a company s ability to meet short-term obligations. These ratios give some insight into the present cash solvency and are a measure of the company s ability to meet adversity. Generally liquidity ratios look at the short-term assets or resources and the short-term debts and obligations. Current Ratio. As discussed in Chapter 5 the current ratio is the ratio of Current assets Current liabilities For Fruit Crate Manufacturing Co. Inc. the current ratio for 2006 is 276 055 .21 1 98 294 Supposedly the higher the ratio the better the company s ability to pay bills. However the ratio does not take into account how 182 Performance Measurement Systems CHAPTER 6 Figure Sample Balance Sheet and Statement of Earnings Fruit Crate Mfg. Co. Inc. Assets 2006 2005 Current Assets Cash and marketable securities 21 285 20 860 Accounts receivables 83 473 91 155 Inventories 164 482 157 698 Prepaid expenses 2 554 2 049 Accumulated prepaid tax 4 261 3 475 Current assets 276 055 275 237 Fixed Assets Fixed assets