liquidity ratios Flashcards
1
Q
what do liquidity ratios show?
A
assess ability for a firm to meet short term liabilities when they fall due. ie. do they have enough cash to pay?
2
Q
what is the equation for current ratio? give relevant units.
A
current assets / current liabilities
X:1
3
Q
what does the current ratio show?
A
the higher the ratio, the better the liquidity. means they have more current assets to cover current liabilities
4
Q
what is the equation for quick ratio? give relevant units.
A
(current assets - inventory) / current liabilities
X:1
5
Q
what does the quick ratio show?
A
some inventory takes a long time to sell, which means the assets aren’t liquid, so this ratio removes inventory
