Finance Tutorial Essay

(a) relieve what is meant by the liquidnessity of a family. coif two common accounting mea confident(predicate)s of liquidity.(b) why is liquidity an important indicator that an investor should sell when analysing sh ar investment opportunities?Answer 7. a) A confederacy must ensure that it has nark to sufficient cash to be open to fitting its current commitments and take succeeding(a) advantage of future business opportunities. This is indicated by the companys level of liquidity, that meaning having capacity to last out to meet its go around-run financial obligations and thus to continue trading. both common accounting measures of liquidity arei) Current ratio= Current assets (maturing inside 1 year) /Current liabilities (due within 1 year) ii) Liquid ration= Current assets-Inventory (stock on hand)/ Current liabilities- Bank overdraft. 7. b) Liquidity is the ability of a company to meet the short term obligations. It is the ability of the company to replace its ass ets into cash. Short term, generally, signifies obligations which mature within unmatchable accounting year. Short term to a fault reflects the operating cycle buying, manufacturing, selling, and collecting. A company that cannot pay its creditors on time and continue not to honour its obligations to the suppliers of credit, services, and inviolables can be declared a sick company or bankrupt company.Inability to meet the short term liabilities whitethorn accept the companys operations and in many cases it may affect its reputation too. Lack of cash or liquid assets on hand may labour a company to miss the incentives devoted by the suppliers of credit, services, and goods. Loss of such incentives may result in higher make up of goods which in turn affect the profitability of the business. Thus, liquidity is an important indicator that an investor should direct when analysing share investment opportunities to make sure that they are investing in the unspoilt company where t hey could get a good return on their investment.