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The following is an extract from a business balance sheet - HSC - SSCE Business Studies - Question 24 - 2024 - Paper 1
Question 24
The following is an extract from a business balance sheet. Assets Cash at bank $5,000 Accounts receivable $20,000 Inventory $5,000 Office equipment $70,000 Motor ve... show full transcript
Worked Solution & Example Answer:The following is an extract from a business balance sheet - HSC - SSCE Business Studies - Question 24 - 2024 - Paper 1
Step 1
Calculate the current ratio for this business. Show all working.
Answer
To calculate the current ratio, we first need to determine the total current assets and current liabilities.
Current Assets Calculation:
- Cash at bank: $5,000
- Accounts receivable: $20,000
- Inventory: $5,000
Total current assets:
Current Liabilities Calculation:
- Overdraft: $9,000
- Accounts payable: $11,000
Total current liabilities:
Current Ratio Calculation:
ext{Current Ratio} = rac{ ext{Total Current Assets}}{ ext{Total Current Liabilities}} = rac{30000}{20000} = 1.5Thus, the current ratio for this business is:
Step 2
Explain the influence of ONE financial institution on the financial management of this business.
Answer
One financial institution that can influence the financial management of this business is a commercial bank.
Access to Capital: A commercial bank provides loans and credit facilities, which can be essential for the business's operational and growth strategies. By having access to funds, the business can invest in new projects or manage cash flow more effectively.
Advice and Financial Planning: Banks often offer financial advice and planning services to their clients. This can help the business make informed decisions regarding investment strategies, cost management, and resource allocation, ultimately leading to improved financial performance.
Risk Management Services: Furthermore, banks provide services that help businesses manage financial risks, including insurance products and hedging options. This capability enables the business to secure itself against market volatility and unexpected expenses.