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What are Liquidity Ratios?

These ratios help in determining whether company is able to discharge its short term obligations on time

Hence it helps to determine whether company has sufficient money to meet its day to day operations

 

Important Liquidity Ratios

 

S.no.

Ratio Name

Formula

Ideal Ratio

What is  better

Remarks

1

Current Ratio

Current Assets/Current Liabilities

2:1

Higher the better

Current Assets means those assets and liabilities which are expected to be settled in 1 year

2

Quick Ratio

or

Liquidity Ratio

Quick Assets /Current Liabilities

1:1

Higher the better

Quick Assets means readily sellable current assets like Cash,Bank and FD

 

Short term obligations means liabilities upto 1 year

  1. Accounts and Finance
  2. Step 7 Ratio Analysis
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About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 7 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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