liquidity ratios Flashcards
1
Q
current ratio formula
A
current assets/current liabilities
2
Q
describe current ratios
A
measures the ability of a business to pay back short-term debts
the result is expressed as X:1
(2:1 is ideal)
3
Q
acid test ratio formula
A
(current assets - closing inventory)/current liabilities
4
Q
describe acid test ratio
A
measures the ability of a business to pay back short term debts in a crisis situation
