2.3.2 Liquidity

• Acid test ratio = current assets - inventory / current liabilities
• Assets - valuable things that businesses own.
• Capital - cash put into the business by the owner.
• Current assets - liquid assets that can be converted into cash within a year.
• Current liabilities - debts owed by a business that must be repaid within a year.
• Current ratio = current assets / current liabilities
• Liabilities - debts owed by a business.
• Liquidity - the ability to pay bills in cash when they are due.
• Net assets = total assets - total liabilities
• Non current assets - long term resources that will be used for more than a year.
• Non current liabilities - debts owed by the business that are not due within a year.
• Shareholders equity - the value of a shareholders investment in a business.
• Statement of financial position - a summary of the value of a firms assets, liabilities and equity.
• Total equity = share capital + retained profit
• Working capital - the amount of cash available to pay day-to-day expenses.

  Working capital = current assets - current liabilities