Liquidity ratios, Financial Accounting

Liquidity Ratios - These ratios include the Current Ratio and the Quick Ratio or the acid test ratio. Liquidity ratios show the Liquid position of a company in the short term i.e. the capability of a firm to pay its obligations in the short term.

Ø  Current Ratio = Current Assets / Current Liabilities

Ø  Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Defensive Interval ratio is also a type of efficiency ratio for liquidity which is calculated as below -

Defensive Interval Ratio = Current Assets / Daily operational expenses.

The above ratio indicates the ability of a company to operate without the long term assets or it can be said that how many days a company can operate only through the presence of current assets.



Posted Date: 7/26/2012 5:53:47 AM | Location : United States

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