What is an asset Essays - Asset, Financial Ratios, Free Essays

What is an asset Essays - Asset, Financial Ratios, Free Essays oWhat is an asset? What is a liability? What is the difference between them? Can an organization operate without current liabilities? Explain your answer. An asset is an item that adds value to a company or an individual. A liability is the opposite of an asset and is something that a company or individual is obligated to contribute assets to resolve. The most common example of a liability is a loan. The main difference between assets and liabilities is that assets add value and liabilities take away value. It is possible for a company to operate without any liabilities but it is unlikely. Most of the time companies invest their cash flow from their assets back into the company to either expand or develop some other kind of technology that will later benefit the company in the future. What are current assets? What are current liabilities? How do you calculate the Current Ratio? For example, what is the current ratio for Wal-Mart for the most recent quarter? http://finance.yahoo.com/q/bs?s=WMT Current Assets are assets such as cash and other assets that the company are expected to convert to cash within a year from the date shown in a companys balance sheet. Accounts receivable, inventory, and prepaid expenses are considered current assets. Current liabilities are a companys debts or obligations that are due within the year from the date shown in a companys balance sheet. The current ratio is a liquidity ratio calculated as current assets divided by the current liabilities. This determines whether a company has the ability to pay off its current liabilities within that year. For Wal-Mart its current ratio made an improvement from 2013 to 2014 and from 2014 to 2015. For the actual amount in July 2015 the total current ratio would be 58132000/65262000 which is 1.12. This means that the current liabilities are greater than the current assets for the month of July of this year. oClass, What is an aggressive financing strategy? What are components of aggressive finance strategies? What is the difference between the aggressive and conservative financing models? Under what circumstances would you use either model? I like to watch the show Income Properties on HGTV. For those of you not familiar with the show, a couple has a part of their house they want to convert to an apartment that they will rent out to tenants. The host of the show presents them with two options. For example, if they invest $30,000 in Option 1, they will be able to charge $800 in rent. However, if they invest $40,000 in Option 2 (nicer apartment), they will be able to charge $1,000 in rent. I often see homeowners discussing if they have the additional $10,000. But think this is the wrong way to make the decision. What variables should they be considering when choosing? What is zero working capital? How would you define zero working capital? Net working capital is the amount by which a firms current assets exceed its current liabilities (Gitman, 2015). Zero working capital would be zero difference by which the firms current assets exceeds its current liabilities. When would this methodology be used? Zero working capital methodology would be used when a firm elects to reinvest its working capital rather than retaining it. Financial institutions prefer high levels of working capital, whereas firms prefer low levels. Would this model be applicable to all organizations? Explain. No, zero working capital methodology is not applicable to all organizations. Some firms may need excess cash or inventories to fulfill obligations, therefore reserving working capital. The zero working capital methodology applies best to demand based firms. A demand based firm fills customer orders, manufactures product, etc. as needed. Reference Gitman, L. (2015). Principles of Managerial Finance (14th ed.). New York, NY: Pearson, Addison Wesley. What is their Net Working Capital? Remember, Net Working Capital is calculated as Current Assets - Current Liabilities. Net Working Capital is the current assets minus the current liabilities of a company. It is used to measure the short-term liquidity of a business and can also be used to obtain a general idea or estimate of the ability of company management to utilize assets in an effective manner. The current assets are calculated by adding up cash and cash equivalents, marketable investments, trade

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