Check sibling questions
Accounts and Finance
Step 7 Ratio Analysis

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

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Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.