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Liquidity ratios (Liquidity ratio / cash ratio (Measures a company's …
Liquidity ratios
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Quick ratio
Measures a company's ability to meet short term liabilities out of the assets that are the most liquid and the most quick and easy to realise
Inventories are not always considered to be quick and easy to realise and therefore they are deducted from the current assets figure in calculating the quick ratio
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Cash flow ratio
Measures a company's net cash inflow from operating activities as per the company's cash flow statement to its total debts and helps determine the cash position of the company compared with a prior period or with like companies
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It it shows that a company has insufficient cover to meet its short term obligations than it should take appropriate action which could include bringing this to the attention of its shareholders and other stakeholders such as the financial regulator if the company is subject to supervisory oversight