EvaluatingLiquidityAn important indicator of a company ability tomeet its current obligations.Two commonly used measures:Working Capital =CurrentAssets-Current LiabilitiesCurrent Ratio =CurrentAssets?Current LiabilitiesWHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Evaluating Liquidity An important indicator of a company ability to meet its current obligations. Two commonly used measures: Current Ratio = Current Assets ?Current Liabilities Working Capital = Current Assets - Current Liabilities
2.SourcesofCapitalLiabilities Definedas debts orobligationsarisingfrompasttransactionsorevents.Maturity=1yearorlessMaturity>1yearCurrentNoncurrentLiabilitiesLiabilitiesWHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Liabilities Defined as debts or obligations arising from past transactions or events. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities 2. Sources of Capital
The acquisition of assets is financed from twosources:DEBTEQUITYFundsfromFundsfromcreditors,witha definite duedate, andownerssometimesbearinginterest.WHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school The acquisition of assets is financed from two sources: Funds from creditors, with a definite due date, and sometimes bearing interest. Funds from owners DEBT EQUITY
LiabilitiesQuestionDevon Co. borrows $100,000 from FirstBank. The loan will be repaid in 10 yearsand has an annual interest rate of 8%Isthis a current liability oranoncurrentliability?WHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Liabilities Question Devon Co. borrows $100,000 from First Bank. The loan will be repaid in 10 years and has an annual interest rate of 8%. Is this a current liability or a noncurrent liability?
LiabilitiesQuestionDevon Co.has current liabilities of$230,000andcurrentassetsof$322,000Whatis Devon's currentratio?CurrentCurrentCurrentRatioAssetsLiabilities322,000230,000ST1.4WHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Liabilities Question Devon Co. has current liabilities of $230,000 and current assets of $322,000. What is Devon’s current ratio? Current Ratio = Current Assets Current Liabilities = $ 322,000 $ 230,000 = 1.4