What are different types of liquidity ratios?
The most widely used liquidity ratios are the current ratio, the quick ratio and the cash ratio. In these three ratios, the denominator is the level of current liabilities. The current ratio is simply the ratio of current assets to current liabilities.
What are the types of liquidity ratios and its formula?
Current Ratio = Current Assets/Current Liability = 11971 ÷8035 = 1.48. Quick Ratio = (Current Assets- Inventory)/Current Liability = (11971-8338)÷8035 = 0.45….Example:
| Particulars | Amount |
|---|---|
| Receivables | 1072 |
| Stock | 8338 |
| Other Current Assets | 254 |
| Total Current Assets | 11917 |
What is meant by liquidity ratios list any two types of liquidity ratios?
Quick ratio = (marketable securities + available cash and/or equivalent of cash + accounts receivable) / current liabilities. Quick ratio = (current assets – inventory) / current liabilities.
What is basic liquidity ratio?
Basic liquidity ratio is a personal finance ratio that calculates the time (in months) for which a family can meet its expenses with its monetary assets. Financial planners and advisers recommend having a minimum basic liquidity ratio of three months.
What are the 5 liquidity ratios?
4 Common Liquidity Ratios in Accounting
- Current Ratio. One of the few liquidity ratios is what’s known as the current ratio.
- Acid-Test Ratio. The Acid-Test Ratio determines how capable a company is of paying off its short-term liabilities with assets easily convertible to cash.
- Cash Ratio.
- Operating Cash Flow Ratio.
What are ratio types?
Ratio Analysis is done to analyze the Company’s financial and trend of the company’s results over a period of years where there are mainly five broad categories of ratios like liquidity ratios, solvency ratios, profitability ratios, efficiency ratio, coverage ratio which indicates the company’s performance and various …
How do you calculate liquidity ratio?
The ratio used to measure the ability of a company to pay its short-term liabilities with the short-term assets is called as the current or liquidity ratio. It is calculated by dividing the current assets with the current liabilities.
Are liquidity ratios the higher the better?
In general, a higher liquidity ratio shows a company is more liquid and has better coverage of outstanding debts. Alternatively, external analysis involves comparing the liquidity ratios of one company to another or an entire industry.
What is the financial ratio used to assess a company liquidity?
The most basic of the liquidity ratios is the current ratio, also called the working capital ratio. The current ratio equals a company’s current assets divided by its current liabilities.
Is a higher or lower liquidity ratio better?
Higher liquidity ratio is always preferred over the lower ratio. The main reason is that higher ratio indicates that the company is in a better position to repay its short-term obligation and this will not lead to default or any financial distress.