{"id":27901,"date":"2015-04-04T03:43:19","date_gmt":"2015-04-04T03:43:19","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=27901"},"modified":"2024-04-03T13:22:55","modified_gmt":"2024-04-03T07:52:55","slug":"ratio-analysis-liquidity-ratio","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/ratio-analysis-liquidity-ratio\/","title":{"rendered":"Ratio Analysis: Liquidity Ratio"},"content":{"rendered":"<p style=\"text-align: center\"><a ref=\"magnificPopup\" href=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/04\/Ratio-Analysis-Liquidity-Ratio.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-28007\" alt=\"Ratio Analysis Liquidity Ratio\" src=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/04\/Ratio-Analysis-Liquidity-Ratio.jpg\" width=\"242\" height=\"190\" \/><\/a><\/p>\n<p>Liquidity refers to the ability of a firm to meet its short term liabilities. The liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. The greater the coverage of current assets to short-term liabilities shows\u00a0 a clear signal that a company can pay its debts that are falling due in the coming near future and\u00a0 ability to\u00a0 fund its current operations. A low coverage rate\u00a0 raises a red flag for investors\u00a0 and they\u00a0 may think that the company will have difficulty in\u00a0 meeting the\u00a0 running\u00a0 operations and its obligations. Current Ratio &amp; Liquid Ratio are the part of\u00a0 the Liquidity Ratio.<\/p>\n<p><b>Current Ratio= Current Assets\/Current Liabilities<\/b><\/p>\n<p>Current assets includes cash, Bank, Stock, Debtors, Bills Receivables, Short Term Investment, Prepaid expenses, Short Term loan &amp; Advances given , Marketable Securities, Accrued Income etc. Whereas Current liabilities includes Sundry Creditors, Bills payable,\u00a0 Outstanding expenses, Short term provision, Dividend payable , Provision for taxation,\u00a0 provision for doubtful debts, Advance receipts, current maturities of long term debt etc.<\/p>\n<p>Current Ratio indicates the number of times that the short term assets can cover the short term debts.\u00a0 Higher the ratio, the better it is, however but too high ratio reflects an in-efficient use of resources &amp; too low ratio leads to insolvency. The ideal ratio is considered to be 2:1.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Quick ratio= Liquid Asset\/Current Liabilities<\/strong><\/p>\n<p><strong>Liquid assets = Current Assets &#8211; Prepaid Expenses &#8211; Inventories (Stock)<\/strong><\/p>\n<p>Acid test ratio is its another name. Indicates the ability to meet short term payments using the most liquid assets. This ratio is more conservative than the current ratio because it excludes inventory and prepaid expenses.The ideal ratio is\u00a0 considered 1:1.<\/p>\n<p><a href=\"http:\/\/www.vskills.in\/certification\/accounting-banking-and-finance\">Click here for government certification in Accounting, Banking &amp; Finance<\/a><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Liquidity refers to the ability of a firm to meet its short term liabilities. The liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. The greater the coverage of current assets to short-term liabilities shows\u00a0 a clear signal that a company can pay its debts that are falling&#8230;<\/p>\n","protected":false},"author":964,"featured_media":28007,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1519],"tags":[3006,3008,3007,3005,3009],"class_list":["post-27901","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-banking-and-finance","tag-current-assets","tag-current-ratio","tag-liquidity-position","tag-liquidity-ratio","tag-quick-ratio"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Ratio Analysis: Liquidity Ratio - Vskills Blog<\/title>\n<meta name=\"description\" content=\"What does the Liquidity Ratio denote?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/blog\/ratio-analysis-liquidity-ratio\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ratio Analysis: Liquidity Ratio - 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