Liquidity

Question 1

What do Liquidity Ratios measure?

Answer 1

the ability a company has to meet current obligations without having to use long term assets

Question 2

What is the difference between Solvency and Liquidity?

Answer 2

Solvency - measures a company’s ability to pay debt and continue the activity

Liquidity - focus on current accounts

Question 3

Current Ratio

Answer 3

current assets / current liabilities

Question 4

What is the general rule for current ratios?

Answer 4

the higher the better

Question 5

What is the Current Ratio?

Answer 5

how much your current assets can cover your
current liabilities

Question 6

Quick Ratio

Answer 6

quick assets / current liabilities

Question 7

How do you measure quick assets?

Answer 7

1. cash + marketable securities + accounts receivable
2. total current assets - inventory - prepaid assets

Question 8

What is the general rule for Quick ratio?

Answer 8

the higher the better

Question 9

What is the Quick Ratio?

Answer 9

how much your current LIQUID assets can cover your current liabilities

Question 10

Cash Ratio

Answer 10

cash / current liabilities

Question 11

What is the general rule for Cash Ratios?

Answer 11

the higher the better

Question 12

What is Cash Ratio?

Answer 12

how much your current CASH and cash equivalents can cover your current liabilities