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wow gold Acid Test Ratio

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Dołączył: 09 Maj 2014
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PostWysłany: Pon Maj 12, 2014 03:34    Temat postu: wow gold Acid Test Ratio Odpowiedz z cytatem

Acid Test RatioGA_googleFillSlot("personal-finance_hub_content_250x250"); The Acid-Test ratio measures the short term liquidityof a company. During an Acid-Test analysis the short term assets are weightedagainst the current liabilities. The name comes from the process of extracting gold fromrock that are mined in gold mines. Gold, unlike other metals, do not corrode ifsubmerged in acid. When the gold nugget is submerged in the acid an if it doesnot dissolve, that that really is gold. The concept regarding financialstatements of companies indicate that is the company “passes” the Acid-TestRatio, then the company, is able to pay its shot term debts. To calculate it you need to divide the sum of the cashof the company, account receivables, and all the short term investments of theobserved company with the current liabilities. It is very important, that whenthe numerator and the denominator of the ratio is assembled together only shortterm entries be considered; short term accounting entries that are liquid, thatis, they can be monetized quickly and cheaply. Say Company Xhas $1 million on its bank account, and in petty cash. Accounts receivables(these are short term credits owed to Company X) are $10 million. Short terminvestments (such as fixed term deposits) are $4 million. Current liabilitiesare (these are short term credits owed by Company X, such as to its suppliersof, say raw materials) $12 million. So the Acid-Test ratio of Company X is (1mill 10 mill 4mill)/(12mill)=1.25. Those companies that have an Acid-Test ratio lower than1 usually have difficulties in paying their short term credits. To be able to,they would have to sell some of their asset. The problem with this is that ifthe company has very few assets, beside production facilities, office spaces,etc, the company might not have other option is to sell them. Advantages of using the Acid-Test Ratio The Acid-Test ratio can be used for virtually allcompanies, of which we know the key components. Often banks and financialinstitutions are in many ways different than other standard companies, howeverthe Acid test ratio can be applied to them also. The end result of the ratio is very easy to understandand conclusions based on the result can quickly be drawn. The primary issue thatneeds be considered is that the ratio has an end result of a minimum of 1,anything above that only reduces the risk of the company to run into liquidityor solvency problems. The Acid-Test ratio measures purely the company’sfinancial performance. As outside factors only have a minor effect on theresult the company, its conclusions are safe. [url= of Warcraft - EU.wow_eu.Gold.Info.aspx]wow gold[/url] As such it is also easy tocompare it with that of other companies in the same industry. Problems with the Acid-Test ratio One of the problems of the Acid-Test ratio is the factthat account receivables and account liabilities play a vital role in theformula. In case of disputes between the company and one of its suppliersproviding the company short term credit, the supplier may demand paymentssooner than than the dates specified in the contract. [url= of Warcraft - EU.wow_eu.Gold.Info.aspx]wow gold[/url] The problem with this isthat if the company’s supplier has a monopoly or virtual monopoly. Virtualmonopoly is when there is the possibility to switch to other suppliers, but dueto technical reasons, it might be very difficult or expensive characterized by the specific industry. [url= of Warcraft - EU.wow_eu.Gold.Info.aspx]wow gold[/url] In this case theliquidity problems, because the payment terms of current receivables remainconstant. Another problem is that the Acid-Test ratio is too muchof a theoretical valuation method, its practicability is highly questionable.  This ratio does not affect or measure neitherthe short term nor the long term performance or the value of the company. Asliquidity problems occur only in special occasions, the ratio looses much ofits usefulness. Another problem poses from financial statements can bemanipulated. In case of different accounting standards, the ratio may lead towrong components input into the ratio’s formula, potentially resulting inmisleading result. Financial Ratios Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet Amazon Price: $6.46 List Price: $8.99 GA_googleFillSlot("personal-finance_hub_share_520x280"); Last updated on May 29, 2013 xboter 2014
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Wysłany: Pon Maj 12, 2014 03:34    Temat postu:

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