HSC Business Studies Transcendent Understanding.

The lower the ratio, the better as it indicates efficiency in the individual expenses Accounts receivable turnover = Sales ÷ Accounts Receivable x 100 High turnover ratios indicate that the business has efficient debt collection. The bigger the number, the worse it is Liquidity Ability to pay short term liabilities The amount of current assests should be higher than its debts Current Ratio = Current Assets ÷ Current Liabilities 2:1 is considered in a good, stable financial position Solvency Meeting financial commitments in the long term (12+ months) Debt to Equity Ratio = Total Liabilities ÷ Owner's Equity The higher the ratio, the more the business relies on debt Short Term Objectives Can be both tactical (1 -2 years) or operational (day to day). These are mainly focused on cash flow and positive current assets and liabilities Long Term Objectives