F4: Working capital and its components

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Author:
salacas
ID:
227603
Filename:
F4: Working capital and its components
Updated:
2013-07-19 11:02:44
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F4 Becker CPA
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F4: Working capital and its components
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  1. Working capital
    Current Assets-Current Liabilities. It's often a measure of solvency of a company and is used in many financial ratios for analysis purposes.
  2. Current Ratio
    Current Assets/Current Liabilities
  3. Quick ratio
    (Cash+Net receivables+Marketable securities)/Current Liabilities

    Bigger the ratio, less risk of financial distress
  4. Entry to reclass short-term liability to long-term liability
    • Short term liabliity DR.
    • Long term liability        CR.
  5. Cash equivalents
    Cash, money market accounts, but also highly liquid investments with 90 days or les to maturity
  6. Restricted Cash
    Cash that has been set aside for a specific use or purpose (purchase or property, plant, equipment)

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