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11 Cards in this Set

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the ability to meet financial obligations as they become due
paying off a debt by making periodic payments
What are the four questions Herzlinger says you can solve with ratios?
1. Are goals consistent with resources?
2. Are sources and uses of funds matched?
3. Is there intergenerational equity? Need to look at more than one year of data, project multiple years into the future. Equity here means fairness.
4. Are present resources sustainable?
liquidity ratio (AKA short-term solvency)
measures the org's ability to meet its needs for cash in the short term.

current ratio=current assets/current liabilities
long-term solvency ratio
measures org's reliance on debt in capital structure and ability to repay the debt in the long term
activity ratio (aka asset turnover ratio)
high ratio means org's getting a lot of use out of its assets
What's the formula for working capital? (a liquidity ratio)
working capital = current assets - current liabilities

Must always be positive
what's the formula for the quick ratio (a liquidity ratio)?
quick ratio = (cash + marketable securities + accts receivable)/current liabilities
what's the formula for dynamic working capital (a liquidity ratio)?
dynamic working capital = working capital / cash flow from operations
assets - liabilities
net assets
same meaning as equity or net worth