Financial Ratios: Receivables, Payables, and Liquidity

Flashcards covering key financial concepts including receivables, payable days, and liquidity, based on the provided lecture notes.

Where are 'receivables' categorized on a balance sheet?

Current assets.

How is 'receivable days' calculated?

(Receivables / Sales) x 365.

From a financial perspective, what is the desired relationship between receivable days and payable days?

Receivable days should be shorter than payable days.

What do 'payable days' indicate about a business?

How quickly a business pays its debts.

What are the potential negative consequences if a business takes too long to pay its debts?

Credit ratings may be affected, and suppliers may restrict the amount of credit.

What can be a potential benefit for a business in delaying payments to its creditors?

It helps with cash flow.

How is 'payable days' calculated?

(Payables / Cost of Sales) x 365.

What does 'liquidity' measure in a business?

A business's ability to survive in the short term, specifically its ability to meet short-term debts and day-to-day expenses.

What risk does a business face if it cannot meet its current liabilities from its current assets?

It is at risk of failure if creditors/payables demand immediate payment of debts.

What is the formula for calculating a business's liquidity ratio?

Current Assets / Current Liabilities.