## What is liquidity ratio PPT?

1. Liquidity Ratio. Liquidity ratios These ratios analyse the short-term financial position of a firm and indicate the ability of the firm to meet its short-term commitments (current liabilities) out of its short-term resources (current assets). These are also known as ‘solvency ratios’.

How is liquidity ratio calculated?

Current Ratio = Current Assets / Current Liabilities They are commonly used to measure the liquidity of a and current liabilities line items on a company’s balance sheet. Divide current assets by current liabilities, and you will arrive at the current ratio.

What is liquidity formula?

Liquidity for companies typically refers to a company’s ability to use its current assets to meet its current or short-term liabilities. The current ratio (also known as working capital ratio) measures the liquidity of a company and is calculated by dividing its current assets by its current liabilities.

### What are the types of liquidity ratios?

Types of Liquidity Ratio

• Current Ratio.
• Quick Ratio or Acid test Ratio.
• Cash Ratio or Absolute Liquidity Ratio.
• Net Working Capital Ratio.

Why is current ratio important?

The current ratio compares all of a company’s current assets to its current liabilities. The current ratio helps investors understand more about a company’s ability to cover its short-term debt with its current assets and make apples-to-apples comparisons with its competitors and peers.

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. Monetary assets are liquid assets i.e. they are low-or-no risk cash equivalents which can be easily converted to cash with no-or-low loss in value.

#### What is liquidity with example?

Liquidity is defined as the state of being liquid, or the ability to easily turn assets or investments into cash. An example of liquidity is milk. An example of liquidity is a checking account in the bank. (finance) Availability of cash over short term: ability to service short-term debt.

What does it mean to have liquidity ratio?

Liquidity ratios These ratios analyse the short-term financial position of a firm and indicate the ability of the firm to meet its short-term commitments (current liabilities) out of its short-term resources (current assets). These are also known as ‘solvency ratios’.

What does it mean to have a quick ratio?

Quick Ratio or Acid Test Ratio In Finance, The Acid –Test ratio or quick ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets includes those current assets that can be quickly converted to the cash.

## How is current ratio of current assets calculated?

Current ratio It is calculated by dividing current assets by current liabilities. Current ratio = Current assets where Current liabilities Conventionally a current ratio of 2:1 is considered satisfactory 9.

What are activity ratios and asset utilization ratios?

Activity ratios These ratios are also called efficiency ratios / asset utilization ratios or turnover ratios. These ratios show the relationship between sales and various assets of a firm.