Question

List some ratios for liquidity analysis.

Answer 1

Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current.

Some of the ratios used for liquidity analysis are-

1)current ratio

2)quick ratio

3)working capital ratio

4)cash ratio

CURRENT RATIO-

Current ratio is balance-sheet financial performance measure of company liquidity. Current ratio indicates a company's ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months.

QUICK RATIO-

The quick ratio is a measure of how well a company can meet its short-term financial liabilities. Also known as the acid-test ratio, it can be calculated as follows: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.

WORKING CAPITAL RATIO-

The working capital ratio is the same as the current ratio. It is the relative proportion of an entity's current assets to its current liabilities, and is intended to show the ability of a business to pay for its current liabilities with its current assets.

CASH RATIO-

The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities. The metric calculates a company's ability to repay its short-term debt; this information is useful to creditorswhen deciding how much debt, if any, they would be willing to extend to the asking party.