Asset Liability - Signs to Detect

Asset Liability - Signs to Detect

Signs to detect

Ascertain the amount of liquid assets, which determine the company's ability to meet immediate liabilities, to finance new expansion projects, or acquire subsidiaries, and thus its immediate financial strength. If liquid assets show a high figure in relation to total current assets, and compared with current liabilities, see that this is reflected in the share price on the market; if not, the share is undervalued.

Apart from the benefits of a high figure for liquid assets as described above, such a figure could also mean under-employment of capital, as sometimes these assets could be more profitably used in the business. An inefficient management might well leave such surplus assets under-employed for too long, and not utilise them in desirable expansion.

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