Liquidity ratio analysis

by Happy Happy on January 02, 2019 in Accounting, Financial Management

Liquidity Ratio is the ratio – which measures the company's ability to meet its short-term debt obligations when due. This ratio measures the company's ability to pay short-term obligations when due. Basically, this is a result of the liquidity ratio of the Division of cash and other assets and smooth with short term loans and current liabilities. This ratio shows how many times the short term debt liabilities can be covered by cash and assets more smoothly. If the value is greater than 1 then it means short-term obligation can be closed completely.

In General, the higher the liquidity ratio, the higher the margin of safety that are owned by the company to meet the smooth liability. Liquidity ratio greater than 1 indicates that the company in question has a healthy financial and possibly small will experience financial difficulties.

Types of Liquidity Ratios

Several types of common liquidity ratios are used to measure a company's ability to meet its short term obligations maturity it is current ratio (assets ratio), the ratio of liquid (quick acid test ratio) and the ratio of cash (the Cash Ratio).

Current Ratio (Current Ratio)

The Current ratio or the Current Ratio is a measure of the performance of financial balance sheets against the liquidity of the company. A current ratio indicates the company's ability to meet its short-term debt obligations. Current ratio measures whether a company has sufficient resources to pay its debts over the next 12 months. Current ratio Current Ratio is calculated or by sharing current assets (current assets) and current liabilities (Current Liabilities).

The Formula of the Current Ratio (Current Ratio)

Current Ratio = Current Assets/Debt Smoothly

Quick ratio (Quick Ratio or Acid Test Ratio)

The quick ratio or also known as Acid Test Ratio this is the size of a company's ability. To meet its obligations in a nutshell by using the most liquid assets (liquid) or assets approaching cash (quick assets). A Quick assets include assets smoothly or current assets. Which may be quickly convert into cash that approaches the value of the book. The quick ratio is view as a sign of financial strength or weakness of a company. Because it can provide information about the company's short-term liquidity. Quick ratio Quick Ratio or it can tell to the lender how much short-term debt companies that can be met by selling all its liquid assets in the shortest time.

The Formula of the Ratio of Fast (Quick Ratio)

Quick Ratio = (Current Assets – Inventory)/Debt Smoothly

Cash Ratio

The cash Ratio is the ratio between the total cash and the company's cash equivalents current liabilities. This ratio to determine whether the company can meet short-term obligations. The cash ratio is generally a more conservative view toward the company's ability. To cover its obligations of other liquidity ratios due to other assets and receivables not list venture into the calculation of the cash Ratio.