Mock Ratios: Liquidity Flashcards
1
Q
What’s the Cash Ratio?
A
Liquid Assets / Current Liabilities
2
Q
What’s the Current Ratio?
A
Current Assets / Current Liabilities
3
Q
What does the Cash Ratio tell us?
A
The cash ratio tells us how much cash the business has available to pay its current obligations or liabilities.
A high cash ratio may indicate that the business isn’t using its cash efficiently (in investments for example)
4
Q
What does the Current Ratio tell us?
A
The current ratio tells us if a company has assets enough to cover its current liabilities.
Greater than 1 is good - suggesting sufficient assets to cover liabilities
Less than 1 is worrying - suggesting not enough assets to cover its short term obligations.
