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Liquidity is a prime concern in a banking environment and a shortage of liquidity has often been a trigger for bank failures. Holding assets in a highly liquid form tends to reduce the income from that asset (cash, for example, is the most liquid asset of all but pays no interest) so banks will try to reduce liquid assets as far as possible.
Liquidation of a partnership generally means that the assets are sold, liabilities are paid, and the remaining cash or other assets are distributed to the partners. When normal operations are discontinued, adjusting and closing entries are made. Thus, only the assets, liabilities and partners' equity accounts remain open.
Higher income taxpayers could "park" income inside a private company instead of being paid out as a dividend and then taxed at the individual rates. To remove this tax benefit, some jurisdictions impose an "undistributed profits tax" on retained earnings of private companies, usually at the highest individual marginal tax rate.
A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting , there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Leverage ratios depict how much a company relies upon its debt to fund operations. A very common leverage ratio used for financial statement analysis is the debt-to-equity ratio. This ratio shows the extent to which management is willing to use debt in order to fund operations. This ratio is calculated as: (Long-term debt + Short-term debt ...
All you have to do to calculate it is divide a company’s net income by its total assets. Imagine that a company has $1 million in assets and generates $100,000 in net income. Dividing $100,000 ...
A going concern is an accounting term for a business that is assumed will meet its financial obligations when they become due. It functions without the threat of liquidation for the foreseeable future, which is usually regarded as at least the next 12 months or the specified accounting period (the longer of the two).
However, if a company's current ratio is too high, it may indicate that the company is not efficiently using its current assets. [2] A current ratio of less than 1 indicates that the company may have problems meeting its short-term obligations. [3] However, if inventory turns into cash much more rapidly than the accounts payable become due ...