Liquidity Equations

Question 1

CurrentRatio=

A business’s ability to meet short-term payments using its current assets
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Answer 1

Current assets/ current liabilities

Question 2

Liquid Capital Ratio=

A business’s ability to meet short-term payments using current assets but excluding inventory

Answer 2

(Current assets - inventory) / current liabilities

Question 3

WorkingCapital=

Amount of short-term assets available to cover short-term liabilities

Answer 3

Current Assets - Current Liabilities

Question 4

CashRatio=

A business’s ability to pay off short-term liabilities using only cash/ near cash items

Answer 4

Cash / Current liabilities