Measuring Liquidity Flashcards
1
Q
why are liquidity ratios so important
A
Liquidity ratios are used to determine whether the business has enough current assets to pay off any debts that may need repaying
2
Q
what does current ratio show
A
If the current assets are greater that the liabilities, then the
business is in a healthier shape than if it were the other way
around.
3
Q
what does liquid capital ratio tell us
A
It is important to measure a business’s liquidity without
the inclusion of inventory as inventory is the least liquid
as it takes time to sell.
