Short Term Liquidity And Operating Cash Flows

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3. Short-term liquidity and operating cash flows. Please be advised good cash flow systems are necessary for effective operation in the Motor Vehicles Dealers industry. As it is expected, companies in this industry have expensive purchases that, when combined with low turnover, can lead to liquidity problems. Liquidity refers to the availability of cash in the near future after taking account of immediate financial commitments (also known as current liabilities). Cash in the near future will be available from bank deposits, cash released by sale of stocks and cash collected from customers. Immediate financial commitments are shown in current liabilities. The first ratio of liquidity is the current ratio, which is a simple comparison of current assets with current liabilities. As per IbisWorld, the industry benchmark for current ratio is 1.3 to 1 (7), which means that for every dollar committed in liabilities, companies have 1.3 in their assets. Companies which generate cash on a daily basis, such as car retailers, can therefore operate on a lower current ratio. For our particular sample, the trend has been very similar in the past 5 years (see graph below). Overall, AHG has presented more solvency and liquidity than APE. *ref 2/3 Another aspect of solvency we need to look at is if the companies have enough short-term assets (without selling inventory) to cover their current liabilities. This is particularly important in times of crisis, where short-term creditors are

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