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Circulating Reason

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The financial reasons or financial ratios are quotients which enable the comparison between different financial data. These reasons serve as analysis tools that allow a person to plan actions or make a decision linked to finances.

There are a lot of financial reasons. In this opportunity we will focus on the circulating reason , also known as solvency study . This reason Consists of the division of current assets by current liabilities .

What do these concepts refer to? He current or current assets It is the liquidity that an organization has at the time of closing an exercise. In general, those assets that can become money in cash within a period not exceeding twelve months. Current assets include short-term financial investments, accounts receivable and treasury, for example.

That is, among what are current assets, we can find both marketable securities, as well as the amount of money in cash, documents receivable and even accounts and inventories.

He current or current liabilities , on the other hand, is formed by the obligations that the entity has to cancel within a period of less than twelve months, such as promissory notes and the credits contracted.

With these ideas clear, we can understand what circulating reason is. This ratio arises from the division between liquid assets and liabilities about to expire. What it does, therefore, is to reveal the solvency of the entity. The current ratio provides accurate information about the firm's level of assets, something that is useful for planning investments, contracting debt, etc.

Yes one company at the end 2011 had a circulating reason for 1,76 and, at the conclusion 2012 , a circulating reason for 1,25 , it could be said that he lost solvency.

In addition to all of the above, it should not be overlooked either that both the aforementioned assets and liabilities also shape another reason that is known by the name of proof or acidic reason. In this case, it must be stated that it is very much in relation to the current ratio and that it consists in subtracting the inventory from the current assets and the result obtained by dividing it by the current liabilities.

This is carried out because it is considered to be useful to be able to quantify what the number of monetary units in liquid investment is for what each monetary unit of liabilities is for what is short term. The fact that it is the inventory that is subtracted is because it is believed that this is a low liquid asset.

In the same way, we must not forget what is called super acid test. That is defined by the following formula:
Super acid test = (cash and cash equivalent + accounts receivable) / current liabilities.

This other operation is carried out with the clear purpose of measuring what is the number of monetary units in assets that are effectively liquid, so that is each monetary unit of short-term debt.

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