free site statistics
Wednesday , February 1 2023
Home / Accounting and Business / Liquidity Ratios

Liquidity Ratios

Financial ratios provide the business with a method to evaluate its performance. Also, that is a way to compare the firm’s performance with similar businesses in the industry. The relationship between two or more elements of financial statements is measured by ratios.

Financial ratios can be divided as follows, under the broader classification.

  • Liquidity Ratios
  • Asset Management Ratios (Efficiency Ratios)
  • Leverage Ratios (Debt Management Ratios)
  • Profitability Ratios
  • Valuation Ratios

Through this article, we discuss liquidity ratios.

What is the liquidity ratio?

The liquidity ratio measures a company’s ability to pay its short-term obligations using short-term assets. Under the liquidity ratio, the firm uses the current ratio, quick ratio, and cash ratio to measure its liquidity position.

Current Ratio

The current ratio measures a firm’s ability to pay off its short-term liabilities from its current assets. It helps investors and creditors to understand the liquidity of a company. Also, this ratio uses to determine how easily that company will be able to pay off its current liabilities.

The formula of the current ratio:

A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments. The ideal current ratio is 2.

Quick Ratio

The quick ratio measures the ability of a company to pay its current liabilities from only its quick assets. This is a good sign for investors and creditors. Creditors can know if they will be paid back on time through this ratio.

The formula of the quick ratio:

A higher quick ratio is more favorable for the company because it shows there are more quick assets than current liabilities. The ideal quick ratio is 1.

Cash Ratio

The cash ratio measures a firm’s ability to pay off its current liabilities with only cash and cash equivalents. Creditors are particularly interested in this ratio because they want to make sure their loans will be repaid.

The formula of the cash ratio:

A ratio above 1 means that all the current liabilities can be paid with cash and equivalents. A ratio below 1 means that the company needs more than just its cash reserves and equivalents to pay off its current debt.

 

 

Improve Your Health

  • How Green Tea affect to improve your Health

    This is the Health Knowledge Lankatricks provide you. Under the Health Calgary we try to discuss various area about improve your Health. This Post discuss about Green Tea and How it effect for your health.

Knowledge

  • Introduction Life Insurance Basics

    Many business analyst think about life insurance to be the essential of sound financial planning. It can be a necessary engine in the following situations.   Replace source of revenue for dependents If people depend

  • Jeta Logo Designer FREE – Software for Design Quality Logo

    Jeta Logo Designer FREE Today We Introduce Jeta Logo Designer FREE Software. By Using this Software You can Design Quality logo for Your Web Site ,Company ,Your Group or Your Facebook Page. So , There are many

  • Six principles of insurance

    In this post shows the six principles of insurance and usage of that principles when dealing with the insurance contract. Every insurance contract gives financial protection and security to the person who buy the insurance and that

  • Blogging Advantages and Disadvantages Guide

    Do you need to write your own Blog? or Do you already have your own Blog? If “Yes“, Then this guide is vary impotent for you, And, this guide explains about Blogging Advantages and Disadvantages. This is

  • The biggest interview mistakes to avoid

    This article is also a Lanklatricks.com another guide about career advice. This guide discuss happening mistakes when people facing interview. By avoiding these mistakes you can face interview correctly.   The biggest interview mistakes to

  • Fundamental Insurance Equation – Actuarial Techniques Part 03

    This is the third lesson of actuarial techniques. This part also discuss another terms of Fundamental Insurance Equation. if you don’t read second parts of this lesson. you can learn by using following link. The

  • What is Banking Law and Banking

    In this article give you same best introduction about “What is Banking Law and Banking” and related concepts.Before knowing about banking law should know that what the mean of law and what the mean of

– The things we publish in this website are relating to the job information and information relating to the professional courses, which are extracted from various sources such as various newspaper advertisement,circulars and Various websites. The right of these information belongs to the first owner of the information. If any alteration happen these information, we don’t take the responsibility arising arising from such alteration. Instead, what we do is to inform you as quickly as possible regarding the information related to the job opportunities and model applications and professional courses. as well as we allow you to gain essential knowledge related knowledge related for the competitive exams.