Buffett (1994): "In setting compensation, we like to hold out the promise of large carrots, but make sure their delivery is tied directly to results in the area that a manager controls.

Warren Buffett wrote on how corporate managers destroy shareholder value by resorting to unwanted acquisitions through his 1994 letter to shareholders. Let us proceed further in the same letter and see what other investment wisdom the master has to offer.

The current mortgage crisis in the US has put the global economy on the brink of a recession and has made big dents in the balance sheets of some of world's top financial institutions. Thus, with damages of such a magnitude, it is only natural to assume that the heads of these institutions during whose tenure the crisis took place should face financial penalties of some kind. However, if the pay packets of some of these executives are any indication, people harboring such notions are doing nothing but wallowing in outright fantasy. As per reports, CEOs of some of these institutions who have posted billions of dollars of losses due to the sub prime crisis will continue to rake in millions of dollars. All that shareholders get by way of solace is their ouster by the board or voluntary resignation. So much for alignment of shareholders' interest with that of the CEO or the management!

This is not a standalone case and there have been many such instances in the past where despite bringing companies down to their knees, CEOs and top management have gone on to earn fat salaries. Certainly, boots that all of us would love to get into! After all who would not want to lead a company where while salaries are tied to profits on the upside, there is no financial punishment to speak of when losses happen by the billions.

Yet, practices like these are commonplace in the corporate world and year after year, shareholders of troubled companies have to bear the egregious costs of the animal like aggressive instincts of its management. Thus, in order to avoid traps like these, it becomes important that when we as investors invest, we should have a close look at the compensations that the management gets in times both good as well as bad and see whether the company has a proper compensation system in place. A lot can be learnt if we have a look at how the master plans compensation for executives in the companies Berkshire own and his views on the issue. This is what he has to say on fair compensation practices.

"In setting compensation, we like to hold out the promise of large carrots, but make sure their delivery is tied directly to results in the area that a manager controls. When capital invested in an operation is significant, we also both charge managers a high rate for incremental capital they employ and credit them at an equally high rate for capital they release.

It has become fashionable at public companies to describe almost every compensation plan as aligning the interests of management with those of shareholders. In our book, alignment means being a partner in both directions, not just on the upside. Many "alignment" plans flunk this basic test, being artful forms of "heads I win, tails you lose."

In all instances, we pursue rationality. Arrangements that pay off in capricious ways, unrelated to a manager's personal accomplishments, may well be welcomed by certain managers. Who, after all, refuses a free lottery ticket? But such arrangements are wasteful to the company and cause the manager to lose focus on what should be his real areas of concern. Additionally, irrational behavior at the parent may well encourage imitative behavior at subsidiaries."

http://www.equitymaster.com/detail.asp?date=2/21/2008&story=3

Buffett (1994): Don't get bogged down by near term outlook and strong earnings growth; look for the best risk adjusted returns on a long-term basis

Warren Buffett highlighted in his 1994 letter to shareholders, the futility in trying to make economic prediction while investing. Let us go further down the same letter and see what other investment wisdom the master has to offer.

One of the biggest qualities that separate the master from the rest of the investors is his knack of identifying on a consistent basis, investments that have the ability to provide the best risk adjusted returns on a long-term basis. In other words, the master does a very good job of arriving at an intrinsic value of a company based on which he takes his investment decisions. Indeed, if the key to successful long-term investing is not consistently identifying opportunities with the best risk adjusted returns than what it is.

However, not all investors and even the managers of companies are able to fully grasp this concept and get bogged down by near term outlook and strong earnings growth. This is nowhere more true than in the field of M&A where acquisitions are justified to the acquiring company's shareholders by stating that these are anti-dilutive to earnings and hence, are good for the company's long-term interest. The master feels that this is not the correct way of looking at things and this is what he has to say on the issue.

"In corporate transactions, it's equally silly for the would-be purchaser to focus on current earnings when the prospective acquiree has either different prospects, different amounts of non-operating assets, or a different capital structure. At Berkshire, we have rejected many merger and purchase opportunities that would have boosted current and near-term earnings but that would have reduced per-share intrinsic value. Our approach, rather, has been to follow Wayne Gretzky's advice: "Go to where the puck is going to be, not to where it is." As a result, our shareholders are now many billions of dollars richer than they would have been if we had used the standard catechism."

He goes on to say, "The sad fact is that most major acquisitions display an egregious imbalance: They are a bonanza for the shareholders of the acquiree; they increase the income and status of the acquirer's management; and they are a honey pot for the investment bankers and other professionals on both sides. But, alas, they usually reduce the wealth of the acquirer's shareholders, often to a substantial extent. That happens because the acquirer typically gives up more intrinsic value than it receives."

Indeed, rather than giving in to their adventurous instincts, managers could do a world of good to their shareholders if they allocate their capital wisely and look for the best risk adjusted return from the excess cash they generate from their operations. If such opportunities turn out to be sparse, then they are better off returning the excess cash to shareholders by way of dividends or buybacks. However, unfortunately not all managers adhere to this routine and indulge in squandering shareholder wealth by making costly acquisitions where they end up giving more intrinsic value than they receive.

http://www.equitymaster.com/detail.asp?date=2/7/2008&story=2

What are the success for business secrets?

What are the success for business secrets?

Lots of words have been written already on this topic. That’s because of the urgent demand from million of business people who -desperately- want to know what these secrets exactly are.

They want to become successful too. Like their favorite idols, whoever they may be.

Many of them talk about money when discussing the topic. They want to become rich.

But that has nothing to do with the definition for success. After all…
 the richest man is not the one who has the most money; the richest man is he who needs the least!

So, success is not typically related to money. You can’t say you aren’t successful if you don’t earn a six-figure income. And those that do may not be as successful as those that don’t!

No, money isn’t one of the secrets to success for business people.

I can list a few success factors, like:

- Success for business is about making things happen. People who take action will become successful in the end.

- As part of making things happen, success for business also means to fail as fast as possible, because failure is part of the learning process. It doesn’t brand you, it’s just a setback to the beginning point.

- Also, success for business starts with setting achievable goals that can be adjusted along the way. Making a plan an stick to it is always a good idea. Asking yourself tough question too. And both will definitely help you to become successful in your business.
Photo Credit:aloshbennett

- Your attitude will be part of your business success too. Being optimistic and uplifting, living a balanced life, both financially as well as spiritually, trying to be healthy and being a loyal community member, whatever these communities are, will also help.

- Learn how to think “success” so that you will become successful at whatever it is you do.

These are all great success factors, but we still aren’t at the core of the question.

How can ordinary people create extraordinary
success for business and compelling futures?

You know, I think I have the answer.
Discover the success for business secrets.


http://www.affordable-internet-marketing.com/2010/02/success-for-business-secrets/

Understand why Cash is King

'Turnover is vanity, profit is sanity, but cash is reality."

The most common reason that businesses fail is not through lack of profit but through lack of cash.  Many failed businesses are highly profitable but run out of cash.


Profitability versus liquidity.

Whereas profitability is the return generated by a business, liquidity is the ability to pay expenses and debts as and when they fall due.  Liquidity is essential for the financial stability of a business.  A failure to manage liquidity may lead to a business being unable to pay its suppliers and debt holders, which may ultimately lead to bankruptcy.

Cash is like oxygen.

A useful analogy is that profit is like food, whereas cash is like oxygen.  The survival 'rule of threes' states that people can survive three weeks without food, three days without water, but only three minutes without oxygen.  Similarly, a business can survive without profit in the short term but cannot survive without cash.  If employees and suppliers aren't paid the business will not survive for long.

When the cash runs dry.

Although this sounds simple, many businesses don't place enough attention on their liquidity.

• Firstly, businesses aren't realistic when predicting their cash income and cash expenses.  Generally, they overestimate income and underestimate expenses. 
• Secondly, not enough businesses regularly forecast cash flow and foresee problems before they arise.  When they run out of cash, it's often too late.

Ideal goals.

Naturally, both a healthy cash flow and high profits is an ideal goal, but in practice it is not that easy.  

• The short-term goal of a business should be to manage cash flow, and 
• the medium- to long-term goal to manage profitability.

Deciding a suitable cash balance.

Businesses should discover their optimum balance of cash flow.  There is a balance between holding enough cash to meet all short-term demands and utilising cash in more profitable investments.  There is thus a trade-off between holding sufficient liquid assets and investing in more profitable assets.

Successful businesses manage cash flow in the short term and profit in the medium to long term.

Improve Cash Flow - Part 2 of 2

Previously we looked at generating cash from operations, capital expenditure and financing.  Here, we look at working capital.  This is a measure of the operating efficiency and liquidity of a business.

Working capital is the difference between current assets and current liabilities.  In other words the amount of cash required to finance inventory and trade receivables net of trade payables.  Cash tied up in inventory or money owed by customers cannot be used to pay short-term obligations, and therefore businesses need to release cash from these sources where possible.

Minimize inventory levels.
There are many methods of inventory management.  A well known technique is JIT ("just-in-time"), used mainly in manufacturing.   Goods are produced only to meet customer demand.  All inventory arrives from suppliers just in time for the next stage in the production process.  This technique minimizes inventory levels.

Minimize and control cash owed by customers.
It is important to follow procedures and be organized in collecting customer debts.  

Maximize the payment period to suppliers.
Delaying payments to suppliers will not generate cash but it will delay its outflow.  Many businesses use supplier credit as a source of finance.  Large and powerful customers are often accused of dictating extended payment terms, which add pressure to a small business's cash flow.  Extended credit should be negotiated as opposed to taken, to avoid problems in the future.  Businesses rely on their suppliers to keep their operations flowing, so payment terms should always be agreed in advance.

"Creditors have better memories than debtors; creditors are a superstitious sect, great observers of set days and times!"

Release working capital to pay short-term obligations.

Improve Cash Flow - Part 1 of 2

How can businesses improve cash flow?  There are several sources of cash for a business.  Here we look at generating cash from operations, capital expenditure and financing.

Generate cash from operations

Ways to increase cash income:

• Find new customers, especially those who are prepared to pay in cash.
• Offer incentives to existing customers to pay in cash.

Ways to reduce cash costs:

• Review expenses for discretionary expenditure.  Ask if items of expenditure, such as first class travel, are really needed.  Can the business survive without them?
• Postpone expenditure - for example, use a web-based video conference instead of travelling to a meeting.
• Try to renegotiate large overheads, such as rent.

Generate cash from or reduce cash on capital expenditure

• Consider delaying the purchase of new assets or extend the replacement cycle of existing assets, such as computers or motor vehicles.
• Renegotiate the price and payment terms for unavoidable capital expenditure.
• Consider leasing new assets or even selling and leasing back existing assets.

Generate cash from financing

• Increasing, extending, or rescheduling bank loans is a key source of cash for businesses.  Banks will often demand assets as security and enforce strict covenants when issuing loans.  The business will need to ensure it can cover interest payments from its cash flow.
• Some businesses 'sell' or 'factor' their customer debts.  Factoring companies will advance cash on outstanding invoices, depending upon the customer, credit terms and risk - for a charge.  This can be an expensive form of finance, and - for small businesses - a trap, as once they start factoring debts it is difficult to break out of the cycle.
• Shareholders may be willing to invest further finance into a business if they can foresee a return.
• Alternatively, some businesses reduce dividend payments to shareholders in difficult times to keep cash within the business. 

"It's easy to get a loan unless you need it!"

Operations, capital expenditure and financing are three key sources of cash.

Measure the cash operating cycle

Let us examine the method used to measure the length of the cash operating cycle.  This is used to assess a business's cash needs and any financing requirement.

Measuring the cycle

The following formulae can be used to measure the length of the cash operating cycle for a manufacturing business.  The length is usually measured in days, although weeks or months can easily be calculated too.

a.  Raw materials holding period
= (average raw materials inventory / annual raw material usage) x 365 days

b.  Materials conversion period
= (average work in progress inventory / annual cost of sales) x 365 days

c.  Finished goods inventory period 
= (average finished goods inventory / annual cost of sales) x 365 days

d.  Receivables collection period
= (average receivables / annual sales) x 365 days

e.  Supplier's payment period
= (average trade payables / annual purchases) x 365 days

Length of Cash operating cycle length 
= a + b + c + d - e

The following should also be considered:

• Business growth, which will affect the cycle in the future, and 
• Seasonality, which will affect the cycle at different times of the year.

---

Think about the cash operating cycle of your business in comparison with that of your suppliers and customers.  

• Who has the greatest exposure to cash flow problems?
• How much room to manouevre do you have if your cycle slows down?
• Do you need extra finance?

---

Financing the cycle

The length of the working capital cycle will help indicate how much working capital is required by the business and therefore how much needs to be financed.  For most businesses there will be a proportion of their working capital requirement which is constant and a proportion which is variable.

• It is advisable to fund the constant stable part with medium to long-term finance.  
• For the variable requirement, short-term flexible finance such as an overdraft is more suitable.

The value of investment required will increase over the cycle.  For example, 

• a business with 20 inventory days and 80 receivable days cannot be compared to 
• a business with 80 inventory days and 20 receivable days.  

Although both have 100 days' requirement, the investment required in the first business is far higher, as the value of receivables (sales price) is more than the value of inventory (cost).

The cash operating cycle length should be measured to determine the working capital financing requirements.

Understand the Cash Operating Cycle

The cash operating cycle is the length of time between paying out cash for inputs and receiving cash from sales.  It is also referred to as the working capital cycle or  cash conversion cycle.

Businesses should understand, measure, control and finance their cash operating cycle.  It is also useful to be aware of the cash operating cycles of  customers, suppliers and even competitors.  The cash operating cycle is normally measured in days and is represented by the diagram below, using the example of a manufacturer.

---

Time ------------------------->

Inventory of raw materials ---> @Cash paid out --> Conversion of raw materials --->  Inventory of finished materials ---> Receivables collection period ---> #Cash received

Supplier's payment period ---@Cash paid out --- CASH OPERATING CYCLE --- # Cash received

---

Service Businesses
A consultancy working on long-term projects may have lots of money owed to them for 'unbilled work-in-progress' as well as long receivable collection periods.  Their main input cost will be consultants, who have no payment period.  A small consultancy business may have difficulty financing long cash operating cycles.  As such, it is common practice for consultancies to ask for stage payments from their clients on a long project.

Seasonal Businesses
Seasonal businesses, such as calendar and diary manufacturers have fluctuating operating cycles.  Production is spread throughout the year and inventories will gradually build up.  Trade receivables will increase from a low start as retailers stock up for the peak sales season, but may not pay until after the season.  The supplier's payment period will be negligible and therefore seasonal manufacturers will require several months of financing.

Retailers
A large retailer such as a supermarket will have a relatively low finished goods inventory period (due to perishables) and minimal receivables as the majority of their sales are in cash.  In addition, due to their size and purchasing power they can negotiate extended payment terms with suppliers.  Therefore, some supermarkets will actually have a negative cash operating cycle, in that they receive cash from customers before they have to pay suppliers.

The Ideal Cycle
Businesses should aim to minimize their cash operating cycles.

Know and try to minimize your cash operating cycle.

What the Par Value of a Stock Means

What the Par Value of a Stock Means

Par value, sometimes referred to as face value, is the nominal value assigned to an underlying security. Par value acts very differently depending on whether the underlying security is a debt instrument, such as a bond, or an equity instrument, such as common stock. Par value will play little role in the market price of most common stocks but can be an important component of preferred stocks.

Function

1. Par value is a factor of the legal value of the corporation issuing the common stock. The legal value of the corporation is determined by multiplying the par value by the number of shares of company stock that are outstanding. The par value represents the minimum price the company may pay to buy back its stock from investors. The par value is assigned by the issuing company and is typically quite low--1 cent or less per share.

Features

2. Stocks may be sold at whatever price the market will bear as long as the price is equal to or above the stock's par value. Stock may not be sold below its par value. The par value of stock is assigned by the company when it forms; however, the par value may be altered by the company as the needs of the company change over time, subject to state regulation.

Considerations

3. Not all states require companies to assign a par value to their stocks. Stocks issued without par values are referred to as zero-par value stocks or no-par stocks. The legal value of the companies that issue such stock is determined by the total amount received by the company from the initial sale of company stock.

Identification

4. The par value of a company's stock is typically printed on each stock certificate. A stock certificate of a zero-par stock may include a statement indicating the stock has no par value or it may not have any reference to par value. Investors may determine the par value of a company's stock by contacting the company's investor relations department.

Significance

1. Par value has little significance in determining the market value of common stock. Par value has much more significance when the underlying security is preferred stock that requires the payment of a specific dividend because in these instruments par value value represents the amount the company must repay to the investor at maturity. Par value for preferred stock becomes an important facet in calculating the interest rate on dividend payments, market values and yields.

http://www.ehow.com/about_6332199_par-value-stock-means.html

A quick look at Supermax (19.4.2010)

Latest:
A quick look at Supermax (19.4.2010) Q1 2010
http://spreadsheets.google.com/pub?key=telQsoPdo0K4BY0D2VQg_1Q&output=html

Notes:
http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/ba387758ae37412b482568a300466fb6/a3900c5dbc98b9824825770a001ca756/$FILE/1Q%20Financial%20Results%20-%20Notes%20-%20Qtr%20Ended%2031032010.pdf



Previous:
A quick look at Supermax (19.2.2010) Q4 2009
http://spreadsheets.google.com/pub?key=tET25tonDBAwf2VRc9KCI0A&output=html

Evaluate a business using ratios

Ratio analysis is a useful tool that is widely used to measure business performance.  There are various groups of people who need information about the performance of a business.

Business success can be defined as "the achievement of business objectives".  Measuring success will therefore depend on a business's objectives.  For most businesses this is profit.

The financial performance ratios facilitate performance measurement between and within businesses.  Note that such ratios are meaningless in isolation and should be assessed in relation to a comparator or benchmark, which could include:

• the previous year
• the budget
• an internal division or department 
• a competitor.

Care should be taken to compare like with like.  There will be natural differences in ratios according to the nature of a business, its size, its age and the industry within which it operates.  Additionally, the period of comparison should be considered.  Ratios will usually fluctuate in the short term and therefore a medium- to long-term comparison should be used.



LIMITATIONS OF RATIOS

Ratios do not provide answers to every question and their interpretation can be subjective.  They are a useful guideline to business performance but only a starting point for a full analysis.  They are generally calculated on historic accounting information, which may itself include assumptions and estimates.



OTHER INDICATORS OF SUCCESS

A variety of information will present the best overall picture of a business, such as

• other information included in a company's annual report (for public listed companies); 
• the age and nature of a business; 
• any recent changes in the business, such as new products or market; and 
• any changes in the industry within which the business operates and the wider economy.

NON-FINANCIAL PERFORMANCE MEASURES (NFPM)

These include

• market share, 
• customer loyalty, 
• productivity, 
• quality, and 
• investment in research and development.  

NFPMs should be used alongside financial performance measures to provide a balanced view of a business.


Know the uses and limitations of financial performance ratios.



Related posts:

Measuring Business Performance

Measure Profitability

Measure short-term solvency and liquidity

Measure long-term solvency and stability

Calculate investor ratios

Evaluate a business using ratios

Estimate the value of a business

Calculate investor ratios

Investor ratios are used by existing and potential investors of mostly publicly listed companies.  They can be obtained or calculated where necessary from publicly available information.


EARNINGS PER SHARE (EPS)

This is a popular profitability statistic used by financial analysts.  'Earnings available for distribution' is bottom-line net profit attributable to shareholders after all other costs have been deducted.  Many remuneration packages are linked to EPS growth.

EPS = Earnings available for distribution /  Number of shares in issue



PRICE/EARNINGS (P/E) RATIO

The P/E ratio applies to publicly listed companies and is a key measure of value for investors.  A P/E ratio of 10 means that investors are willing to pay 10 times previous year's earnings for each share.  Generally, the higher the P/E ratio, the higher the growth prospects perceived by investors.

P/E ratio =  Share price / EPS



DIVIDEND YIELD

This measures cash paid to shareholders as dividends.  This should be compared to capital growth, to measure the overall return to shareholders.

Dividend yield = Dividend per share / Price per share

Mature businesses tend to have higher dividend yields than young businesses, as the latter reinvest most of their earnings.  Investors looking for high-income investments choose high-dividend yield companies.



DIVIDEND COVER

This follows a similar principle to 'interest cover'.  It measures how many times a business can pay its dividends from its earnings.  It is used as a measure of dividend risk.

Dividend cover = EPS / Dividend per share

It also measure the proportion of profits retained in a business versus paid out as dividends.  For example, a dividend cover 3 times shows that a business has paid one third of its profits to shareholders and retained two-thirds.  Retained earnings are an important source of finance and therefore dividend cover is often high.

Use investor ratios to see if business goals are aligned with investor goals.


Related posts:

Measuring Business Performance

Measure Profitability

Measure short-term solvency and liquidity

Measure long-term solvency and stability

Calculate investor ratios

Evaluate a business using ratios

Estimate the value of a business

Measure long-term solvency and stability

Long-term solvency ratios measure the risk faced by a business from its debt burden.  Debt interest must be paid irrespective of cash generation or profits.  Consequently, the amount of profit that can be reinvested in the business or paid as dividends is diluted.  An excessive debt burden will restrict the ability of a business to raise further debt finance.


THE GEARING RATIO

Gearing (or leverage) is a measure of a business's long-term financing arrangements (or capital structure).  It is essentially the proportion of a business financed via debt compared to equity.

Gearing ratio = (Interest bearing debt - Cash) / [Equity + (Interest bearing debt - Cash)]

The ideal proportion is subject to the nature of a business and the current economic climate.  In practice many businesses have gearing levels less than 50%.  The higher the gearing, the greater the risks from dilution of earnings and sensitivity to changes in interest rates.


THE DEBT RATIO

This measures the ability of a business to meet its debts in the long term.  It is a measure of 'security' for financiers.  The ratio should certainly be less than 100% and many believe it should be less than 50%.

Debt ratio = Total debts (current and non-current liabilities) / Total assets (current and non-current assets)

The risk posed from high debt and gearing ratios can be mitigated by high interest cover.


INTEREST COVER

This measures how many times a business can pay its interest charges (or finance expenses) from its operating profit (or profit before interest and tax).  Ideally a business should be able to cover its interest at least 2 or more times.

Interest cover (times) = Operating profit (EBIT) / Finance expenses

The ability to service debt is a measure of risk to debt providers, shareholders and ultimately the business itself.


NET DEBT TO EBITDA

Although not a traditional measure of long-term solvency, the 'net debt to EBITDA' ratio has become increasingly popular with banks as a measure of gearing.  (EBITDA stands for 'earnings before interest, taxes, depreciation and amortization'.)

Net debt to EBITDA (times) =  (Interest bearing debt - Cash) / EBITDA

Banks will typically lend a business up to 5 times its earnings.  Cash generated from operations can be substituted for EBITDA.


Use gearing and debt ratios to calculate long-term risk levels.


Related posts:

Measuring Business Performance

Measure Profitability

Measure short-term solvency and liquidity

Measure long-term solvency and stability

Calculate investor ratios

Evaluate a business using ratios

Estimate the value of a business

Measure short-term solvency and liquidity

Short-term solvency is the ability to meet short term debts from liquid assets.  Liquid assets include money on short-term deposit and trade receivables, but not inventories, which cannot be quickly turned into cash.


LIQUIDITY versus PROFITABILITY

In the short term liquidity is more essential to financial stability than profitability.  Cash generated from operating activities is a major source of liquid funds, as measured by the statement of cash flows.  There may be other priorities for funds from operating activities, therefore it is important to have sufficient liquid assets to meet short-term debts.



CASH FLOW

The cash operating cycle is the length of time between paying out cash for inputs and receiving cash from sales.  It is a useful measure of the time taken to generate cash.  Cash flow forecasts enable businesses to predict and deal with liquidity problems before they arise.  It is one of the most important measures of future solvency.


THE CURRENT RATIO

Current ratio =  Current assets / Current liabilities

This is a standard test of short-term solvency and simply measure if a business can meet its current liabilities from its current assets.  Depending upon the nature of the business, the current ratio should usually be greater than 1, depending upon the speed of inventory turnover.



THE QUICK RATIO (or ACID TEST RATIO)

Quick ratio = (Current assets less inventory) / Current liabilities

This is a more reliable short-term solvency measure because inventory is not easily convertible into cash for many businesses.  This ratio should be close to 1, depending upon the business.


INTERPRETING LOW AND HIGH RATIOS

Don't interpret current and quick ratios too literally.  Different businesses operate in different ways.  Low ratios are not always indicative of insolvency risk and high ratios are not always healthy.

LOW RATIOS.


For example, a high volume retailer, such as a supermarket could have healthy liquidity but very low current and quick ratios.  Supermarkets have relatively low inventories as their goods are mainly perishable and turnover quickly.  They have minimal receivables as customers pay in cash.  In addition, their purchasing power results in long trade payable payment periods.  Therefore overall - relatively low current assets and relatively high current liabilities.

HIGH RATIOS.


A poorly managed business with slow-selling inventories and many outstanding receivables may have high current and quick ratios.

Short-term solvency is the ability to pay short-term debts from liquid assets.


Related posts:

Measuring Business Performance

Measure Profitability

Measure short-term solvency and liquidity

Measure long-term solvency and stability

Calculate investor ratios

Evaluate a business using ratios

Estimate the value of a business