Summary: Financial Management

Read the summary and the most important questions on Financial management

• 1 Ratio

• 1.3 Edubook

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• Ratio analysis makes connections between various elements of the annual account, which gives insight into the financial health of a business

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• By once comparing the key figures from a ratio analysis to relevant standards, a clear picture can be formed of a business's financial health.

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• Historical analysis means that key figures of a business are calculated during multiple moments of a certain period and are compared to each other.

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• In case of a lack of clear standards for assessing the calculated financial ratios of a business, the financial ratios could be compared to key figures of business from other industries.

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• An advantage of a ratio analysis is that it is guaranteed to give a good representation of reality.

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• 1.3.1 Liquidity ratios

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• Static liquidity can be determined by means of various ratios:

  • net working capital
    
  • current ratio

  • quick ratio

• Liquidity ratios are intended to give investors an idea of the extent to which a business can meet its financial obligations in case of liquidation.

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• Dynamic liquidity is preferable to static liquidity.

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• The net working capital is an example of a dynamic liquidity ratio.

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• If the current ratio is lower than 1, there is a positive net working capital.

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