Government An agency who caters the needs of the people; delivers basic services for its welfare. An agency who formulates, express and carry the will of the state. 2 aspects of the government 1. Political aspect ❖ Laws; rules/regulations ❖ Gov’t and citizens participation ❖ Etc. 2. Business aspect ❖ Economy • Import/export • GDP/GNP • Money circulation • Etc. “ Running a country is like running a business” Note: Public administration • Actual management of an institution/state • It involves techniques, methods, in order to attain stability and development. Financial Condition Analysis 1. Liquidity Current ratio Quick ratio 2. Solvency Working capital Debt to assets Debt to equity 3. Profitability Return on assets Return on net assets Liquidity • the ratio between the liquid assets and the liabilities of a bank or other institution. liquid assets An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market. Examples include current account, savings account, marketable securities etc. 1. Current Ratio • The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. 2. Quick Ratio • The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio is also known as the acid test ratio. The quick ratio differs from the current ratio in that some current assets are excluded from the quick ratio. The most significant current asset that is excluded is inventory. Solvency • Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth. 1. Working capital • the capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. 2. Debt to Assets • The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt. The debt to total assets ratio is calculated by dividing a corporation's total liabilities by its total assets. 3. Debt to Equity • The debt to equity ratio is a financial, liquidity ratio that compares a company's total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). Profitability • is the ability of a business to earn a profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue, such as producing a product, and other expenses related to the conduct of the business' activities. 1. Return on Assets • is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes. 2. Return on Net Assets • The return on net assets (RONA) is a measure of financial performance of a company which takes the use of assets into account. Higher RONA means that the company is using its assets and working capital efficiently and effectively.
