CIMA F2 Syllabus E. Analysing financial statements - Liquidity - Notes ^{4 / 5}

Bank Account / Overdraft

Don't forget the obvious and look at the movement on this

• Look for why it has increased or decreased

• If money is spent on assets thats normally a good thing

• If money is spent on high dividends (with little cash) thats a bad thing

• If a loan is paid off - that's normally a bad idea (as the company should be able to make a better return)

This is made up of

The difference between being paid needs to be funded (often by an overdraft)

1. Inventory Days + (ideally these are low)

2. Receivable days - (ideally these are low)

3. Payable days (ideally these are high)

Indicators of deteriorating liquidity

• Cash balances falling

• New share / loan issues with no respective increase in assets

• Sale and leaseback of assets

• Payables days getting longer