Corporate liquidity, financial strength, and determinants of corporate value (MANAGEMENT 14)

Cash

Bank balances as well as available short term loan facilities

Inflows

Accounts receivable

Outflows go to

Suppliers, employees, etc.

What do profits and depreciation increase

cash flow in circulation

Although depreciation is non cash it is

added back to cash flow as it represents previous outlay

Non operating cash outflows

interest, tax, dividends, loan repayments, capital expenditure

Non operating cash inflow

New equity, new long term loans, and asset sales

what are the four ways to measure short term liquidity 

1. currrent ratio 

2. quick ratio (acid test) 

3. Working capital to sales ratio

4. Working capital days 

what are working capital days

Average number of days a companies cash is tied up in the operating cycle before being recovered from customers

what does the quick rato asses

The ability to cover short-term liabilities with most liquid assets

What does the working capital to sales ratio show

Surplus liquidity relative to company operations

What are accounts recievable days 

Average number of days it takes the company to collect money from a customer after a sale is made 

What are accounts payable days

Average number of days it takes a company to pay its suppliers

What does interest cover measure

The ability to pay interest from operating profit

What is leverage

the use of borrowed funds to amplify returns

What does high leverage indicate 

More debt. can increase potential returns (ROE) but also increases risk