Short-term creditors, Financial Accounting

Short-term Creditors:  Bankers and another short-term creditor have an interest same to those of the debenture holders and equity shareholders who are interested in the profitability and long-term stability of the business. Their main interest, though, is in the current position of the firm that is its capability to produce sufficient funds working capital to meet current operating requirements and to pay current debts promptly.

The amount of working capital is measured through the excess of current assets over current liabilities. What is significant to short-term creditors is not only the amount of working capital obtainable but more so-is its quality. The major factors affecting the quality of working capital are:

(i)  the behaviour of the current assets comprising the working capital and

(ii) The length of time needed to convert these assets in cash. During this context we may compute the subsequent ratios:

a. Inventory turnover ratio         

b. Account receivable turnover ratio

Posted Date: 4/9/2013 2:21:13 AM | Location : United States

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