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Calculation of Liquidity ratios Current Ratio and Acid-Test Ratio -
Current Ratio (B / C)
Acid - Test Ratio [(B-A) / C] =
Defensive Interval period / ratio (in days) [B / (F / 360)]
Assumption - We have assumed the operational expenses to include "Administrative expenses" and "Selling Expenses" and a year to be of 360 days.
As shown by the ratios above all liquidity ratios i.e. Current Ratio, Acid Test ratio and Defensive Interval period are showing a declining trend from 2008 to 2010. This might be due to the global recession during that period. None of the ratios are increasing or improving after 2008 till 2010.
The liquidity position of the firm is not good as the best measure of liquidity i.e. the quick ratio is also declining continuously in 2009 and 2010 vis-à-vis the previous years.
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