Ratios For Accountnt About Cashlow

Question 1

Current ratio (working capital ratio)

Answer 1

Current assets / current liabilities

Current liabilities = debts to be paid in next 12 months eg overdraft and unstructured debt

Number 1.5-2 is good

If this figures goes up from one year to the next it shows that current assets have increased by more than current liabilities

Shows company is growing / reduced short term debts

Question 2

Liquidity ratio (quick or acid test ratio)

Answer 2

(Current assets - stock) / current liabilities

Eg seasonal business where stock may not be easy to sell

LR should be at least 1