Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

The ability of a business to meet its short-term cash requirements is called liquidity. It is affected by the timing of a company's cash inflows and outflows along with prospects for future performance. Efficiency refers to how productive a company is in using its assets, and it is usually measured relative to how much revenue is generated from a particular level of assets. They are both important and complementary.

Two measures for evaluating a business's short-term liquidity are working capital and the current ratio. Working capital is the dollar amount of a company's current assets less current liabilities as shown below:

Working capital = Current assets - Current liabilities

An excess of the current assets over the current liabilities implies that the company is able to pay its current liabilities. If the current liabilities are greater than the current assets, the company may not be able to pay its debts and continue in business. The current ratio is another means of expressing the relationship between current assets and current liabilities. The current ratio is computed by dividing current assets by current liabilities, as shown below.

Current ratio = Current assets/Current liabilities

The current ratio enables one to compare the liquidity of different-sized companies and
of a single company at different times. Both of these financial measures become even
more relevant when comparing your present results to those of previous years.

Determine the working capital and current ratios for 2004, 2005, and 2006 for the Target Corporation based on the information contained in the consolidated balance sheets in Appendix A. Did Target's working capital and current ratio increase or decrease from 2004 to 2006?

Asset Turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency. It tells the analyst how many dollars of sales a company generates for each dollar invested in assets. It is computed by dividing net sales by average total assets, as shown below.

Asset Turnover = Net Sales/Average Total Assets

Determine the asset turnover ratio for 2004 and 2005 using the information contained in the consolidated balance sheet and income statement for the Target Corporation in Appendix A.

What conclusions can you draw concerning the relative liquidity and efficiency of this corporation? How does Target's results compare to other companies in the same industry? Would you invest in this company? Defend your position on these issues in a two or three paragraph typed response. Do not forget to include your calculations.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925953

Have any Question? 


Related Questions in Basic Finance

1 describe a special purpose building2 compare and contrast

1. Describe a special purpose building. 2. Compare and contrast two widely different types of commercial real estate loans that you had not previously had any experience discussed in this chapter? 3. Discuss each of the ...

1 researchers who use group designs replicate their

1. Researchers who use group designs replicate their findings by repeating the same (or a similar) experiment on other samples of participants. How do single-case researchers replicate their findings? 2. What is the rati ...

Does a large bolt-to-joint stiffness ratio increase or

Does a large bolt-to-joint stiffness ratio increase or decrease the possibility of fatigue failure of the bolt and why? Name at least three bolt, thread, or bolt and thread configurations which can improve the fatigue re ...

1 how would you define the term primary mortgage market2

1. How would you define the term primary mortgage market? 2. Identify the classes of regulated lenders. 3. How does the government intend to simplify the banking system? 4. What is the present status of federal deposit i ...

Consider an option on a non-dividend paying stock whose

Consider an option on a non-dividend paying stock whose share price is sh 120. The exercise price is sh 130, risk free rate is 10% per annum, volatility is 20% per annum and the time to maturity is one year. Construct a ...

What factors would determine whether a particular strategy

What factors would determine whether a particular strategy is a hedge or a speculative strategy? How are spread and arbitrage strategies forms of speculation? How can they be interpreted as hedges? What are the differenc ...

Assignment lasa standards appraisalin this assignment you

Assignment: LASA: Standards Appraisal In this assignment, you will research current financial accounting standards, both U.S. and international, on goodwill impairment. You will write a report that analyzes the final dec ...

What is the accounting identity list at least three of the

What is the accounting identity? List at least three of the assumptions underlying financial statements? Identify at least three current asset accounts ? What is the operating cycle ? Identify three current liability acc ...

1 what are the advantages and disadvantages of usinga

1. What are the advantages and disadvantages of using (a) figures, (b) tables, and (c) text to report the results of experiments in the research report? 2. Differentiate between random sampling and random assignment. Whi ...

1 financial ratios are used extensively in annual reports

1. Financial ratios are used extensively in annual reports to interpret and explain financial statements. Comment. 2. List the sections of annual reports where ratios are most frequently located, in order of use. 3. Acco ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen