Liquidity Only

Question 1

Current Ratio

Answer 1

Current Assets/Current Liabilities

Measures: ability to cover short-term obligations with short-term assets

Good = ratio of 1 or more (indicates more assets than liabilities)

Question 2

Quick Ratio (Acid-Test)

Answer 2

(Cash + Marketable Securities + Receivables)/ Current Liabilities

Measures: More strict test of liquidity (excludes inventory)

Question 3

Cash Ratio

Answer 3

(Cash + Marketable Securities)/Current Liabilities

Measures: Most strict measure of liquidity (Uses only most liquid assets, excludes receivables and inventory)