QUICK ASSETS AND QUICK LIABILITIES 143 others each year. The borrower should seek to manage his business and keep his accounts so that they will not deceive himself, and so that his statement will convince the lender of his worth. A form of financial statement of a corporation, as recommended by the Cleveland Clearing House Association is reproduced in this chapter. 112. The ratio of quick assets to quick liabilities. - In preparing a statement which is an analysis of a balance sheet, the assets and liabilities are divided into current and fixed on the basis of which are liquid (about to be converted into cash) and which are fixed, or permanent. Liquid, or quick assets, are also divided into those which are really quick and which slow. Cash, notes, acceptances, accounts receivable, bonds, stocks, merchandise, farm products, live stock, raw material, goods in process, and finished goods, are quick assets, but the word "slow" is used for all of those which are past due, or might be difficult to sell, or collect. Short-time loans, and others due at an early date, and accounts payable, or soon to become payable, are quick, or current liabilities. In securing credit fixed assets are only a bolster for the rest of the structure. The real tests are how the business keeps its net worth growing, and how it maintains a healthy relationship between certain accounts. One of the most vital is the ratio of quick assets to quick liabilities. W. H. Kniffin, Jr.,' says that quick assets of one and onehalf to three times quick liabilities is the proper proportion, depending on the nature of the business. Babson and May in Commercial Paper say two to two and one-half. It is recognized that statements are usually made after the best season, and that liabilities are less then than at borrowing periods. In so far as statements show that quick assets have been relieved of slow items the proportion can 1 Practical Work of a Bank, pp. 444, 493. FOR THE PURPOSE OF PROCURING CREDIT FROM TIME TO TIME WITH YOU. FOR OUR NEGOTIABLE PAPER OR OTHERWISE, WE FURNISH THE POL. LOWING AS A TRUE AND CORRECT STATEMENT OF OUR FINANCIAL CONDITION ON DATE NAMED BELOW, AND HEREBY AGREE TO NOTIFY YOU IMMEDIATELY IN WRITING, OF ANY MATERIALLY UNFAVORABLE CHANGE IN OUR FINANCIAL CONDITION. IN THE ABSENCE OF SUCH NOTICE OR A NEW AND FULL WRITTEN STATEMENT. THIS IS TO BE CONSIDERED AS A CONTINUING STATEMENT, AND THAT OUR PECUNIARY RESPONSIBILITY HAS NOT FALLEN BELOW THE CONDITION BEREIN SET FORTH. (IN THE ABSENCE OF ANT AMOUNT, INSERT THE WORD "NONE" IN STATEMENT FORMS) LIABILITY UPON CUSTOMERS' ACCOUNTS, ACCEPTANCES, OR NOTES RECEIVABLE, SOLD, ASSIGNED OR PLEDGED LIABILITY AS GUARANTOR FOR OTHERS ON NOTES, CONTRACTS, ETC. LIABILITY FOR BONDS OR UNFINISHED CONTRACTS LIABILITY FOR LEASES TOTAL CONTINGENT LIABILITY CALL IN REYLING TO ALL DUTARA FOLLOWING, Ustre THE WORD "Y" "No" on "Now" WHEN THEY Anowa ComBOTLY.) CASH-NAMES OF ALL BANKS WHERE ACCOUNTS ARE MAINTAINED ....... ANT-RECENTLY RECEIVED AND INCLUDED IN YOUR ASSETS FOR WHICH THE INVOICES HAVE NOT YET BEEN ENTERED AS ACCOUNTS PAYABLE?.. Supplies of this form, with or without the bank's imprint, can be secured STATE MAXIMUM AMOUNT BORROWED FROM ALL SOURCES AT ANY ONE TIME DURING PISCAL YEAR JUST CLOSED 1.. WHERET ➜YOUR BOOKS HAVE BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT. GIVE NAME OF ACCOUNTANT AND DATE OF AUDIT. ARE THERE ANY JUDGMENTS UNSATISFIED, OR SUITS PENDING AGAINST YOUR CORPORATION, AND FOR WHAT AMOUNT?. GIVE DATE YOU REGULARLY TAKE INVENTORY AND CLOSE YOUR BOOKS... The foregoing statements and details pertaining thereto, both printed and written, have been carefully read by the undersigned, and I hereby solemnly declare and certify that same in a full and correct exhibit of sur financial condition. NOTE: If you have any difficulty in filling in the foregoing statements and questionary, the Credit Department of this bank le prepared to extend you scurteous and intelligent service. in fact, we solicit your co-operation and acquaintance with our credit methods. |