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What is Liquidity Ratio?

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What is Liquidity Ratio?..

Liquidity mean ability to clear the current liabilities.
The arthematical expression between the current liabilities
and current assets is called liquidity ratio.
the ideal ration is 2:1

 Is This Answer Correct ? 72 Yes 23 No

What is Liquidity Ratio?..

Liquidity ratio / Acid Test ratio / Quick Ratio is a short
term solvency ratio which shows the ability of a business
concern to meet its current liabilities or liquid
liabilities to be more precise.
It is calculated as :-
Liquid Assets
Liquid Ratio = --------------------
Liquid Liabilities

Where,
Liquid Assets = Current Assets - Stock - Prepaid expenses
+ Liquid Value of Stock

Liquid Assets means those assets which are convertible into
cash without any reduction in value, e.g.marketable
securities.
Liquid value of stock is the value at which the stock can
be realised at a short notice and is taken instead of its
cost because the stock price is not constant, and pp
expenses are not included as they cannot be used to pay off
any liability.

Liquid Liabilities = Current Liabilities - Bank O.D.
- Cash Credits - S.T.Loans

These are subtracted because bank O.D and Cash Credit
Facility are not withdrawn by banks all of a sudden and
liquid liability should only include those liabilities
which may be due instantaneousy at a very short notice.

ALTERNATIVELY,

Liquid Ratio may be computed as :-

Liquid Assets
--------------------
Current Liabilities

BUT, the first approach is much more advisable as it
provides the true picture of the liquidity position.

 Is This Answer Correct ? 24 Yes 0 No

What is Liquidity Ratio?..

It express the relation between the liquid assets and liquid
liabilities.
Except Inventory all current assets are called as Liquid
assets and Except Bank OD all current liabilities are called
as liquid liabilities. The Ideal ratio is 1:1
Liquid ratio = Liquid assets/ liquid liabilities

 Is This Answer Correct ? 37 Yes 17 No

What is Liquidity Ratio?..

liquidity ratio is aiso known as quick ratio and acid test
ratio it is compute quick assets divided by current
liabilities

 Is This Answer Correct ? 23 Yes 8 No

What is Liquidity Ratio?..

Liquidity mean ability to clear the current liabilities.
The arthematical relationship between the current assets
to current liabilities is called liquidity ratio.
the ideal ration is 2:1

it is also defined as the ability to convert assets into
cash quickly and without any price discounts

 Is This Answer Correct ? 16 Yes 9 No

What is Liquidity Ratio?..

liquidity ratio is a ratio of quick assets to curent
liabilities it is also known as quick ratio or acid test
ratio it shows ability of firm to meet its immdiate
financial commitiments.

 Is This Answer Correct ? 11 Yes 4 No

What is Liquidity Ratio?..

Liquidity ratio is known as Quick Ratio

Current assets- stock/ W.I.P
______________________________
Current liabilities

 Is This Answer Correct ? 19 Yes 13 No

What is Liquidity Ratio?..

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. The other term is also current
ratio.

 Is This Answer Correct ? 8 Yes 3 No

What is Liquidity Ratio?..

liquidity ratio is the ratio at which the firms are able to
clear their current liability

 Is This Answer Correct ? 5 Yes 3 No

What is Liquidity Ratio?..

Total dollar value of cash and marketable securities
divided by current liabilities. For a bank this is the cash
held by the bank as a proportion of deposits in the bank.
The liquidity ratio measures the extent to which a
corporation or other entity can quickly liquidate assets
and cover short-term liabilities, and therefore is of
interest to short-term creditors. also called cash asset
ratio or cash ratio.

 Is This Answer Correct ? 4 Yes 3 No

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