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Unformatted text preview: Chapter 13: Interpreting Financial Statements BUILDING BLOCKS OF ANALYSIS Liquidity: Companys ability to meet short-term obligations and to efficiently generate revenues Solvency: Companys ability to meet long-term obligations and generate future revenues Profitability: ability to provide financial rewards sufficient to attract and retain financing Market Prospects: ability to generate positive market expectations WORKING CAPITAL Represents current assets financed from long-term capital sources that do not require near-term repayment Current Assets Current Liabilities CURRENT RATIO Do I have enough cash I can turn to assets (2:1 is a good ratio) Ratio measures the short-term debt-paying ability of the company Current Assets____ Current Liabilities ACID-TEST RATIO Do I have enough cash I can turn to assets (2:1 is a good ratio) Quick assets are cash, short-term investments, and current receivables The ratio is like the current ration but excludes current assets such as inventories and prepaid expenses that may be...
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