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- Acid Test
- Measures ability to meet current debt. This is a stringent test since it discounts the value of inventories. Cash and near-cash divided by current liabilities. A rule of thumb is one to one. A lower ratio indicates illiquidity. A higher ratio may indicated unused funds.
- Cash flow
- Measure of financial health. Equals net profits plus amounts charged for depreciation, depletion and amortization over a given period of time.
- Current ratio
- Ratio of all current assets to current liabilities. This is one
of the liquidity financial ratios used to look at your working capital
and measure short-term solvency.
- Days receivables
- This alternative view of receivables is useful to explain graphically what changes in collection operations and credit do to a business.
- Providing working capital to businesses by buying their receivables (usually at a discount and on a non-recourse
basis) rather than lending against them.
- Federal funds rate
- Rate for which overnight federal funds are traded.
- Financial statements
- Collective name for historical financial reports of assets, liabilities, capital, income and expenses.
- Financial ratios
- Used to assess performance of businesses overtime and to to compare to others in the same profession.
The most important ratios to small businesses are liquidity, efficiency, profitability and solvency.
- Fixtures are items that become attached to real property. Examples are heating and air conditioning systems,
wall mounted shelving, and security alarm systems.
- Name used by banks to describe moneys owed to a business and yet to be received.
- Cancellation of a contract without penalty. Specific requirements apply to bank disclosures of borrower's rights to rescind.
- Return on assets (ROA)
- A percentage calculated by dividing net income after tax by total assets. This ratio is best used to compare
within the same industry usually using average assets for a period to be more accurate.
- Return on investment (ROI)
- Net profit divided by net worth. This ratio tends to magnify short-term shifts in thinly capitalized companies.
- Risk management
- Controlling the probability and/or severity of a potential adverse event so that the consequences of that event are within acceptable limits.
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