which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?
Answer: To determine whether a company will be able to pay its liabilities due in 30 days, we can utilize the balance sheet and the cash flow statement financial statements.
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Balance Sheet: The balance sheet provides a snapshot of a company’s financial position at a specific point in time. It shows the company’s assets, liabilities, and shareholders’ equity. To assess the company’s ability to pay its short-term liabilities, we can look at the current assets and current liabilities sections of the balance sheet. Current assets include cash, accounts receivable, and inventory, while current liabilities include accounts payable and short-term debt. By comparing the total current assets to the total current liabilities, we can determine the company’s liquidity and its ability to meet its short-term obligations.
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Cash Flow Statement: The cash flow statement provides information about the cash inflows and outflows of a company during a specific period. It consists of three sections: operating activities, investing activities, and financing activities. To evaluate the company’s ability to pay its short-term liabilities, we can focus on the operating activities section of the cash flow statement. By examining the net cash provided by operating activities, we can determine if the company generated enough cash from its core operations to cover its liabilities due in 30 days.
By analyzing these financial statements, specifically the balance sheet and cash flow statement, we can gain insights into a company’s liquidity position and assess whether it will be able to fulfill its short-term obligations. It’s worth noting that these statements should be analyzed in conjunction with other factors, such as industry trends, market conditions, and management’s financial strategies, for a more comprehensive assessment.