Liquidity and Ratios used Flashcards
1
Q
What is liquidity
A
The ability to convert assets into cash. A higher liquidity ratio means the company is more likely to pay off any outstanding debts.
2
Q
Current ratio
A
Total Assets / Total Liabilities
3
Q
Acid Test Ratio
A
Current Assets - Inventory / Current Liabilities
Inventory is not accounted for as it is more difficult to liquidate
