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How do you figure out the excess of the current assets of a business over its current liabilities?
Wiki User
∙ 15y ago
(This answer applies to the United States)
According to "Generally Accepted Accounting Procedures" (GAAP) and US Laws and Regulations, a publicly held corporation (one which offers shares for sale to the public and is traded on a stock exchange such as NASDAQ or the New York Stock Exchange) must publish financial statements quarterly which include a statement of their total "Current Assets" and total "Current Liabilities" stated in dollars.
Summaries of these statements may be found on such websites as Yahoo Finance (http://finance.yahoo.com). By entering the "ticker symbol" in the quote box (or starting to type the name of the corporation) you can reach a page where you find a link to their financial statements. There you will find totals for Current Liabilities and Current Assets.
The "excess" in question, then, may be determined by simply subtracting the Current Liabilities from the Current Assets. For a corporation in good financial health, this number should certainly be positive, and in fact is often considered to be good only if it is about equal to the Current Liabilities taken by themselves. That condition would mean that the corporation has a "current ratio" (Current Liabilities divided by Current Assets) of 2, by the same token considered a "good" number.
The optimal current ratio will vary with the type of business however, and a lower ratio might be acceptable in some cases. A very large current ratio suggests the business, while very solvent, may not be managing its cash well. A current ratio of less than one (and therefore a negative "excess") is technically insolvent (in a short time horizon) a Very Bad thing. ("Insolvent" means they can't pay their bills on demand, and could be forced into bankruptcy.)
(Note that a privately held company may not be required to publish these numbers.)
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∙ 15y ago
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Is the excess of current assets over current liabilities is called working capital?
true per my accounting book these wiki answers have helped me pass my tests!!
What is excess of assets over liabilities called?
Fund balance
What are those items that can be considered as working capital?
Working capital represents the funds a company uses in its day-to-day trading operations. It's calculated as current assets minus current liabilities. Current assets are assets that are expected to be converted into cash or used up within one year, and current liabilities are obligations expected to be settled within one year. Here are common items that can be considered as part of working capital: Cash: The most liquid asset, including physical cash and bank account balances. Accounts Receivable: Money owed to the company by customers for goods or services that have been delivered but not yet paid for. Inventory: The value of goods or products that a company holds for sale, including raw materials, work-in-progress, and finished goods. Short-term Investments: Investments in securities or financial instruments that are easily convertible into cash within a year. Accounts Payable: Short-term debts owed by the company to suppliers for goods or services that have been received but not yet paid for. Accrued Liabilities: Obligations that have been incurred but not yet paid, such as salaries, utilities, or taxes. Short-term Loans: Borrowed funds that are due to be repaid within one year. Prepaid Expenses: Payments made in advance for services or goods that will be used within a year, such as prepaid rent or insurance. Working Capital Loans: Loans specifically taken to finance working capital needs. Other Current Assets and Liabilities: These can include items like deferred tax assets or liabilities, advances from customers, and other short-term financial assets or obligations. Working capital management is essential for a company's financial health, as it ensures that the business has enough resources to cover its short-term obligations and continue its operations smoothly. A positive working capital (current assets > current liabilities) is generally considered healthy, while a negative working capital (current liabilities > current assets) may indicate potential liquidity issues.
What are accounts found in a balance sheet?
Basic accounts found on the balance sheet include : ASSETS Cash, Marketable Securities, Accounts Receivable, Inventory, Prepaid Expenses,Investments (Long Term), Plant & Equipment(Less Depreciation) LIABILITIES Current Liabilities include: Accounts payable, Notes, Payable, Accrued Expenses, Long Term Liabilities include: Bond Payable Stockholders Equity include: Preferred Stock, Common Stock, Capital Paid in excess of par, Retained Earning, less Treasury Stocks.
Valuation of goodwill?
Goodwill means the reputation of a Business concern which enables businessmen to earn extra profit, as compared to other concern. Goodwill means various advantages of reputation and connections of a business. Mr. Kohler defines goodwill as "the current value of expected future income in excess or normal return on the investment in net tangible assets:"
In finance what is an excess of liabilities over assets called?
What is excess of total liability over a total assets?
working capital?
working capital is the excess of current assets over current liabilities. if current assets are more than current liabilities, the company has surplus working capital, which is a good sign of liquidity. working capital is calculated as follows:Working capital = Current assets - Current liabilities
What is maturity matching approach?
Hedge risk by matching the maturities of assets and liabilities. Permanent current assets are financed with long-term financing, while temporary current assets are financed with short-term financing. There are no excess funds.
Is the excess of current assets over current liabilities is called working capital?
true per my accounting book these wiki answers have helped me pass my tests!!
What is excess of assets over liabilities called?
Fund balance
What is the excess of assets over liabilities called?
Fund balance
Managing short term asset and liabilities is sometimes called ------- management?
Management of short term assets (current assets) and short term liabilities (current liabilities) is commonly known as working capital management.Working capital is a requirement of funds to meet the day to day working expenses. In a simple term working capital is an excess of current assets over the current liabilities. In working capital management we focus more on receivables management, cash management and inventory management etc. Proper way of management of working capital is highly essential to ensure a dynamic stability of the financial position of an organization.
What are those items that can be considered as working capital?
Working capital represents the funds a company uses in its day-to-day trading operations. It's calculated as current assets minus current liabilities. Current assets are assets that are expected to be converted into cash or used up within one year, and current liabilities are obligations expected to be settled within one year. Here are common items that can be considered as part of working capital: Cash: The most liquid asset, including physical cash and bank account balances. Accounts Receivable: Money owed to the company by customers for goods or services that have been delivered but not yet paid for. Inventory: The value of goods or products that a company holds for sale, including raw materials, work-in-progress, and finished goods. Short-term Investments: Investments in securities or financial instruments that are easily convertible into cash within a year. Accounts Payable: Short-term debts owed by the company to suppliers for goods or services that have been received but not yet paid for. Accrued Liabilities: Obligations that have been incurred but not yet paid, such as salaries, utilities, or taxes. Short-term Loans: Borrowed funds that are due to be repaid within one year. Prepaid Expenses: Payments made in advance for services or goods that will be used within a year, such as prepaid rent or insurance. Working Capital Loans: Loans specifically taken to finance working capital needs. Other Current Assets and Liabilities: These can include items like deferred tax assets or liabilities, advances from customers, and other short-term financial assets or obligations. Working capital management is essential for a company's financial health, as it ensures that the business has enough resources to cover its short-term obligations and continue its operations smoothly. A positive working capital (current assets > current liabilities) is generally considered healthy, while a negative working capital (current liabilities > current assets) may indicate potential liquidity issues.
which of the of the following would increase a company current ratio?
Increasing Cash Reserves: If a company holds more cash or cash equivalents, it will increase its current assets, which would raise the current ratio. Reducing Short-Term Debt: Paying off or reducing short-term debt, such as accounts payable or short-term loans, will decrease current liabilities, resulting in a higher current ratio. Increasing Accounts Receivable Collections: If a company collects outstanding accounts receivable more promptly, it will increase its cash or current assets, which can raise the current ratio. Decreasing Inventory Levels: Reducing excess inventory can decrease current assets, but it can also reduce current liabilities if the company has short-term loans secured by inventory. This can potentially increase the current ratio. Increasing Current Assets: By increasing any of the current assets, such as accounts receivable, prepaid expenses, or marketable securities, without a corresponding increase in current liabilities, the current ratio will go up. Restructuring or Refinancing Short-Term Debt: If a company restructures or refinances its short-term debt to extend maturity dates, it can reduce the current portion of long-term debt, which would decrease current liabilities and raise the current ratio.
What is definition of solvent?
Having assets in excess of liabilities; able to pay one's debts.
What is working capital gap?
In order to reduce the dependence of businesses on banks for working capital, ceiling on bank credit to individual firms has been prescribed. Accordingly, businesses have to compute the current assets requirement on the basis of stipulations as to size. So, flabby inventory, speculative inventory cannot be carried on with bank finance. Normal current liabilities, other than bank finance, are also worked out considering industry and geographical features and factors. Working capital gap is the excess of current assets as per stipulations over normal current liabilities (other than bank assistance). Bank assistance for working capital shall be based on the working capital gap, instead of the current assets need of a business. This type of financing assistance by banks was introduced on the basis of recommendations of Tandon Committee
What is funding analysis?
hat is a Fund? Fund Meaning Money that is set aside for a particular purpose. To provide money for paying off the interest or principal of (a debt). To finance, using long-term debt or Capital. Synonyms Finance Support Back Furnish Fund = Capital We use the phrase "We need additional funds" to mean we need additional capital whether be it for acquiring assets, clearing liabilities or for meeting expenses. This indicates that Fund means Capital. All capital of the organisation whether owned or loaned is capable of being called Fund. Fund is Capital freely available for use A Fund by its nature would be capital kept aside with a purpose. The fund should be capable of being used for the specified purpose at any time. Fund, in the topic Funds Flow Analysis, is a general purpose fund. It represents capital resource that would be available to the organisation for general purposes. It would be capable of being used in any manner the organisation prefers without any restriction/hindrance. Fund is Capital supported by Current Assets Every rupee of a liability/capital is supported by a rupee of an asset. Every rupee of an asset is financed by a rupee of a liability. Consider a new business that has been started with a capital of Rs. 2,00,000 brought in cash. The organisation's Balance Sheet immediately after this first transaction would be: Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash 2,00,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by cash Assets financed by Liabilities : Cash is financed by Capital The next day, Furniture worth Rs. 1,00,000 and Stock Worth Rs. 50,000 have been bought for cash. The Balance Sheet after these transaction would be : Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash Furniture Stock 50,000 1,00,000 50,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by Cash, Furniture and Stock Assets financed by Liabilities : Cash, Furniture and Stock are financed by Capital Capital/Cash is employed in purchasing Assets Since Cash used in purchasing Furniture was financed by Capital, we can say that Furniture is financed by Capital. Whereby, we say that capital is employed in purchasing furniture. On converting an asset into a new one, the liability that was being supported by the replaced asset would now be supported by the new asset. Therefore, on employing capital, the assets supporting capital change. Capital that can be employed To be able to employ capital for any purpose, the asset that is supporting it should be easily convertible. Fund is Capital supported by easily convertible Assets Fund is capital freely available for being used in any which way the organisation intends i.e. for long term or short term needs. To enable such usage, funds (capital that we call funds) should be supported not just by assets which are convertible but by assets that are easily convertible. Current Assets are easily convertible Current Meaning Belonging to the present time. Not overdue; occurring this period. Synonyms Present Existing Recent In Progress Current Assets are assets that are capable of being liquidated in a time span of a year or less. They represent easily convertible assets. Fund is capital supported by easily convertible assets + Current Assets are easily convertible assets. ? Fund is capital supported by Current Assets Funds exclude Current Liabilities Current Liabilities Current liabilities are liabilities that are to be repaid/cleared within the near future (a short period of time). Current liabilities are considered to be supported by current assets as they are similar in nature i.e. both of them have a short life span (a year or less). Current liabilities have a charge on current assets. Fund is capital that is freely available for use for any purpose the organisation intends without any hindrance/restriction. All the capital that is supported by current assets cannot be said to be freely available for use without any hindrance. We do not consider Current liabilities to be representing capital that is freely available for use, since they are to be repaid within a short time span Therefore, capital supported by current assets excluding current liabilities would only be considered as fund. Fund = Current Assets - Current Liabilities Fund is freely available capital + Fund is capital supported by Current Assets + Fund is capital supported by current assets excluding current liabilities [Current assets in excess of those supporting current liabilities support funds.] ? Funds = Current Assets - Current Liabilities Fund = Working Capital Excess of Current Assets over Current Liabilities is Working Capital ? Working Capital = Current Assets - Current Liabilities. ? Fund = Working Capital What is Funds Flow? Flow Meaning To move or run smoothly with unbroken continuity like in the case of a fluid. Something that resembles a flowing stream in moving continuously Synonyms Stream Gush Course Funds Flow Fund being working capital, Funds flow indicates the flow of working capital between two points of time. It involves information relating to the various transformations undergone by working capital (i.e. the changes that have taken place in working capital) during the period involved between the two points of time. Every change in working capital is associated with (or is on account of) a flow either an inflow or an outflow. Thus, funds flow involves information relating to the inflows and outflows that resulted in a change in working capital between the two points of time. When do we say that there is a flow of fund? Fund (Working Capital) in an Organisation is like water in a reservoir. The Fund is analogous to water and the reservoir to the organisation. There is a change whenever there is a flow There would be a change in fund (working capital) whenever there is a flow (in/out) of fund. An inflow would result in an increase and An outflow would result in a decrease. There is a flow whenever there is a change A change in fund (working capital) in the organisation is an indication of flow of fund. An increase would indicate an inflow and A decrease would indicate an outflow. Hidden/Masked flows When there is an inflow followed by an outflow of the same magnitude, there may not be a change in fund (working capital). An inflow would result in an increase in fund which would be set off by an outflow resulting in a decrease. Since the magnitude is the same, after the two transactions, the fund seems to be unchanged. In such situations, to notice the change, we will have to break down the transactions into two instead of viewing them in total.
