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| Liquidity Ratios
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| Introduction |
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A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.Failure to pay off short term obligation may resulted in financial difficulty or bankruptcy in near future.
| Cash Ratio, Quick ratio, Current ratio | <=1 | Very low liquidity |
| Cash Ratio | 1 to 2 | Ok |
| Cash Ratio, Quick ratio, current ratio | >2, >2- <5 | Sitting on cash, Normal |
| Quick ratio, current ratio | >5 | Very short term debt |
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| Ratios |
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Ratio
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Calculation
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Discussion
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Current
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Current Assets / Current Liabilities
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Standard ratio to evaluate working capital.
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Quick (Acid Test)
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(Cash + Marketable Securities + Net Receivables) / Current Liabilities
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This ratio eliminates inventory and other current assets from the
denominator, focusing on “near cash” and receivables.
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Cash
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(Cash + Marketable Securities) / Current Liabilities
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Only cash and cash equivalents considered for payment of current
liabilities.
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Operating Cash Flow
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Cash Flows from Operations / Current Liabilities
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Evaluates cash-related performance (as measured from the Statement of
Cash Flows) relative to current liabilities.
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Cash to Current Assets
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(Cash + Marketable Securities) / Current Assets
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Cash Position
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Cash / Total Assets
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Current Liability Position
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Current Liabilities / Total Assets
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