Liquidity

• Statement of financial position = contains the financial information required to draw conclusions about the liquidity of the business
• current ratio = current assets / current liabilities
• acid test ratio = (current assets - inventory) / current liabilities
• ways to improve liquidity:

  • Reduce the credit period offered to customers
  • Make use of Overdraft facilities or short-term loans
  • Sell off excess stock
  • Sell assets and lease fixed assets instead
  • Introduce new capital and reduce drawings from the business
• liquidity = ability of a business to pay for its day to day expenses
• • The Statement of Comprehensive Income is an end of year financial statement that shows all of a businesses income and expenses over the previous twelve months
  • Each type of profit is calculated within the Statement of Comprehensive Income
• ways to improve profitability:

  • reduce variable costs

  -> buy in bulk

  -> buy cheaper stock

  • reduce expenses
  • reduce one-off costs and interest

  -> delay capital spending

  -> lease fixed assets

  • increase prices