Outrageous Liquidity Ratio Analysis

The current ratio tells a companys ability to pay off the debt obligations.

Liquidity ratio analysis. It assesses the companys ability to meet its short-term liabilities. In this blog post we will explain classification of ratios and discuss Liquidity ratio. In other words Liquidity Ratios measure how quickly assets can be turned into cash.

Liquidity ratio analysis is the use of several ratios to determine the ability of an organization to pay its bills in a timely manner. In our previous blog post we discussed ratio analysis. Thus liquidity suggests how quickly assets of a company get converted into cash.

This is often referred to as the acid test. The current ratio The acid-test ratio The current ratio The current ratio. This analysis is important for lenders and creditors who want to gain some idea of the financial situation of a borrower or customer before granting them credit.

The current ratio compares liabilities that fall due within the year with cash balances and assets that should turn into cash within the year. Current Ratio Current AssetsCurrent Liabilities. Ratio Analysis 8 P a g e Liquidity Ratios Continued Quick Ratio Cash AR Marketable Securities Current Liabilities A more stringent liquidity test that indicates if a firm has enough short-term assets without selling inventory to cover its immediate liabilities.

However managements can employ these ratios to ascertain how efficiently they utilize the. Liquidity Analysis These ratios assess the liquiditysolvency of a business ie. The ability to meet debt obligations and how efficiently the company manages its working capital resources.

Commercial banks and other short-term creditors are generally interested in such an analysis. Basically these ratios used to identify the ability of the firm to pay it debt to evaluate company performance as well as to access company value. In other words these ratios show the cash levels of a company and the ability to turn other assets into.