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Business Studies
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Subject: Accounting and Finance
Title : Liquidity Ratios
Acid Test (Quick Ratio)The quick ratio, also called the Acid test,is a measure of how effectively a company can meet its immediate liabilities. The debtors represent near cash – they are presumably just about to pay up. So immediate liabilities can be met from this source, and, of course, cash.
Current Ratio
The current ratio also includes stock items of raw materials, work in progress and finished goods. The company hopes to convert all of these into cash in the short run, but this depends on continuing sales, and is not so certain, nor is the money immediately available for payment of debts.
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Subject: Accounting and Finance
Title : Net Asset Value
Analysis of ValueWhen a company is closed down and its assets are sold, this is called liquidation. If a company was to go into liquidation, investors would like to know whether the company’s assets would be worth anything, and if so, how much of these net assets would attach to each share. The first piece of information can be read directly from the balance sheet, and requires no further analysis.
Asset Breaker
Sometimes a company has a lot of property that has not been properly valued. The property is worth more than the balance sheet says it is. This makes the company vulnerable to asset breakers.
An asset breaker is an kind of investor who looks for companies that would be worth more if broken up and sold off in little pieces than if taken as a whole. They make their profit by selling the little pieces for more than the bought the company as a whole.
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