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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