Short-term obligations

This is usually defined as the ratio that liquid assets (debtors - - cash) bear to current liabilities. The ratio is a measure of the relation of short-term obligations to the funds likely to be available to meet them. 

Quick ratio A liquidity ratio that reflects a company s ability to satisfy its short-term obligations with its most liquid assets. 

Liquidity ratios are used to identify whether or not a company can meet its short-term obligations. For instance, can the company pay its bills in the coming year Can the company pay its suppliers Can it pay its employees Because this is related to paying off debts... 

What does the ratio indicate PepsiCo has 1.24 times as many current assets as it has current liabilities. For every dollar of current liabilities, PepsiCo has 1.24 of current assets indicating that PepsiCo could pay their debts if the debts were due today. What this particular liquidity ratio does not specify is the mix of current assets. Using just the current ratio, it is difficult to know if their current assets are made up mostly of cash or tied up in inventory or receivables. The PepsiCo example demonstrates a company that can more than meet its shortterm obligations, which is not the case for every company. A current ratio of 1.0 indicates that the company can exactly meet its short-term obligations, whereas a ratio less than 1.0 means that a company cannot meet those obligations. 

Treasury hills are short-term obligations issued with a term of one year or less. Treasury bills are sold at a discount from face value (par) and do not pay interest before maturity. The difference between the purchase price of the bill and the amount that is paid at maturity (par), or when the bill is sold prior to maturity, is the interest earned on the bill. 

Liquidity ratios provide information on the business s ability to meet its short-term financial obligations. The most popular liquidity ratios are the current ratio and the quick ratio. 

The standard quick ratio that any organization strives to obtain is at least 1.0. Simply put, having a quick ratio of greater than 1.0 means that the organization has more quick assets than it has current liabilities. On the other hand, having a quick ratio of less than 1.0 means that the cash that organization has on hand would not be sufficient to pay all its current liabilities, particularly its short-term bills and other obligations. 

Solvency refers to an enterprise s ability to meet its long-term debt obligations on a continuing basis. All financial statement users are interested in the liquidity of a firm in addition to the obvious liquidity concerns of creditors and management. Will the firm be able to pay its short-term debts as they become due Can the firm cover its current liabilities with its current assets Does the firm have an efficient mix of current assets, e.g., cash and inventory Do owners and management properly use the current assets To effectively answer these and other financial questions, it is necessary to use the following financial tools. 

Short-term supply security can be based on administrative measures, such as supply obligations in times of crises, and the market-based establishment of a liquid wholesale market that is capable of transmitting information about supply and demand very rapidly. Market-based instruments are generally more efficient to supply the right information, but some administrative measures may be needed for short-term security measures. This also requires the establishment of rules for cross-border support in cases of emergency. The financial compensation of such emergency support still needs to be explored in detail. 

Unlimited banking is to be allowed from one compliance year to the next (except fixed price permits issued in 2011-12). Short-term borrowing is allowed at a maximum of 5%, meaning that carbon pollution permits from the following year can be used to meet up to 5% of a liable entity s obligation. 

The current ratio is defined as current assets divided by current liabilities. It is an indication of the ability of a company to meet short-term debt obligations. The higher the current ratio, the more liquid the company is. However, too high a ratio may indicate that the company is not putting its cash or equivalent cash to good use. A reasonable ratio is two, but it is better to compare current ratios of companies in a similar business. From Table 16.3, the current assets ratio of U.S. Chemicals is 4,630/4,153 = 1.11, which is alow value. At the end of the year 2000, Monsanto Company had a much better current ratio of 1.80. 

Known chemical substances (notified for EINECS) enjoyed, in a transitional phase, temporary exemption from the obligation to furnish the same safety data required for new chemical substances. Based on the experience gathered during their use, for quite a while it was assumed (Dueshop, 2007) that the temporary continuation of their use could be tolerated according to the hitherto used older standards of safety—and in view of the fact that a short-term clearance of approximately 100,000 chemical substances registered in EINECS could not be effected overnight. 

C2C with liquidity and ROA (H2) Tables 17 and 18 showed the relationship of C2C with liquidity and ROA. Current ratio (CR) is used to measure a company s ability to meet payment obligations pay in the short term using current assets over... 

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