财务报表分析Chapter10

Current Ratio
• Numerator Considerations
– Adjustments needed to counter limitations such as:
• Failure to reflect open lines of credit
• Adjust securities’ valuation since the balance sheet date
– Relevant measure of current liability coverage, buffer against losses, reserve of liquid funds.
– Limitations – A static measure
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4
10-5
Liquidity and Working Capital
Lower profitability
Profitable opportunities
Restricted opportunities
Management actions
Loss of owner control
Coverage of current obligations Loss of capital investment
– Widely used measure of short-term liquidity
– Constraint for technical default in many debt agreements
• Current Ratio – Ratio of Current Assets to Current Liabilities
• Denominator Considerations
– Payables vary with sales.
– Current liabilities do not include prospective cash outlays.
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5
10-6
Liquidity and Working Capital
• Managerial policies regarding receivables and inventories are directed primarily at efficient and profitable asset utilization and secondarily at liquidity.
• Two elements integral to the use of current ratio:
– Quality of both current assets and current liabilities. – Turnover rate of both current assets and current liabilities.
Current Ratio
• Liquidity depends to a large extent on prospective cash flows and to a lesser extent on the level of cash and cash equivalents.
• No direct relation between balances of working capital accounts and likely patterns of future cash flows.
McGraw-Hill/Irwin
Financial Statement
Analysis
K R Subramanyam John J Wild
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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10-2
Credit Analysis
• Current liabilities - Obligations to be satisfied within a relatively short period, usually a year.
• Working Capital - Excess of current assets over current liabilities
10
CHAPTER
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2
10-3
Liquidity and Working Capital
Basics
• Liquidity - Ability to convert assets into cash or to obtain cash to meet short-term obligations. • Short-term - Conventionally viewed as a period up to one year.
• Reflect revolving nature of accounts receivable
• Recognize profit margin in inventory
• Adjust inventory values to market
• Remove deferred charges of dubious liquidity from prepaid expenses
• Working Capital - The excess of current assets over current liabilities.
Lack of liquidity can limit:
Severe illiquidity often precedes:
Advantages of discounts
Insolvency and bankruptcy
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3
10-4
Liquidity and Working Capital
Basics
• Current Assets - Cash and other assets reasonably expected to be (1) realized in cash, or (2) sold or consumed, during the longer of one-year or the operating cycle.