The liquidity Ratio is used to analyze the entity’s ability to pay off its short-term obligations. There are several types of this ratio which is used to judge the company’s performance. The most common are as follows.
Cash conversion cycle is an important financial ratio as it helps the company in calculating the number of days it takes to convert its accounts receivable and inventories into cash. It is also called Net Operating Cycle and is denoted…
Defensive internal ratio is an important liquidity ratio which helps a company understand its liquidity in such a way that it could be aware of how much quick assets it has to repay its daily expenses. During this, we assume…
Cash ratio is the most liquid financial ratio in accounting. It is used to know if the company has cash and cash equivalent to repay its current obligations. Here, we do not add any stock, prepaid advance payments, marketable securities and accounts receivable to arrive at…
Current ratio is the most popular and fundamental financial accounting ratio. It shows the company ability to repay its short term liabilities. It can be calculated by dividing current assets by current liabilities. In order to run business without any cash flow problems,…
Quick ratio is also a very fundamental ratio. It is more liquid ration than the current ratio. In this ratio, we calculate liquid asset which is calculated by subtracting stock/ inventory and advance prepaid payments from the total current assets.…