| huiii said:
Yes they do have to pay for it. What do they pay with? Money. Money in the balancesheet is under assets. If the transaction takes place they swap money for the ownership of gaikai or whatever and where does that show up? under assets as well. No touching the earningreport and so haveing no influence on profit or loss since that is calculated in the earning report. KingofTrolls indeed. |
I do.
Money in your pocket is not the same as assets. This is called financial liquidity.
If u are in financial trouble, dont buy many things and save money. Sony bought so many assets and it only proves that they are in not big trouble.
Liquidity and Companies
One last understanding of liquidity is especially important for investors: the liquidity of companies that we may wish to invest in.
Cash is a company's lifeblood. In other words, a company can sell lots of widgets and have good netearnings, but if it can't collect the actual cash from its customers on a timely basis, it will soon fold up, unable to pay its own obligations. (To read more, check out The Essentials Of Cash Flow andSpotting Cash Cows.)
Several ratios look at how easily a company can meet its current obligations. One of these is thecurrent ratio, which compares the level of current assets to current liabilities. Remember that in this context, "current" means collectible or payable within one year. Depending on the industry, companies with good liquidity will usually have a current ratio of more than two. This shows that a company has the resources on hand to meet its obligations and is less likely to borrow money or enter bankruptcy.
A more stringent measure is the quick ratio, sometimes called the acid test ratio. This uses current assets (excluding inventory) and compares them to current liabilities. Inventory is removed because, of the various current assets such as cash, short-term investments or accounts receivable, this is the most difficult to convert into cash. A value of greater than one is usually considered good from a liquidity viewpoint, but this is industry dependent. (To read more, see The Dynamic Current Ratio andAnalyze Investments Quickly With Ratios.)
One last ratio of note is the debt/equity ratio, usually defined as total liabilities divided bystockholders' equity. While this does not measure a company's liquidity directly, it is related. Generally, companies with a higher debt/equity ratio will be less liquid, as more of their available cash must be used to service and reduce the debt. This leaves less cash for other purposes.
Bottom Line
Liquidity is important for both individuals and companies. While a person may be rich in terms of total value of assets owned, that person may also end up in trouble if he or she is unable to convert those assets into cash. The same holds true for companies. Without cash coming in the door, they can quickly get into trouble with their creditors. Banks are important for both groups, providing financial intermediation between those who need cash and those who can offer it, thus keeping the cash flowing. An understanding of the liquidity of a company's stock within the market helps investors judge when to buy or sell shares. Finally, an understanding of a company's own liquidity helps investors avoid those that might run into trouble in the near future.
Investopedia.com indeed.
