Accounting Liquidity Ratios

Accounting Liquidity Ratios

Liquidity ratios are essential indicators of a firm's financial health, they measure the ability of a company to meet its short-term obligations. Saket stresses the importance of this ratio and highlights the calculations of; the current ratio, quick ratio, and the cash ratio.
Overview

Liquidity and solvency are important parts of a company’s financial health. They measure the company’s ability to pay its bills when due. The liquidity ratios measure the ability of a company to meet its short-term obligations, say in the next 12 months. There are three liquidity ratios that can be calculated based on the information in the balance sheet or the statement of financial position of a non-financial institution: the current ratio, the quick ratio (which is also known as the acid-test ratio), and the cash ratio.

Key learning objectives:

  • What are the benefits of liquidity ratios?

  • How are the different liquidity ratios calculated?

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Summary
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Expert
Saket Modi

Saket Modi

Saket is a financial trainer and consultant based out of London. He specialises in advanced accounting, financial reporting and financial analysis, particularly with regards to International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS) and Financial instruments.

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