Liquidity Flashcards
1
Q
Current Ratio
A
Current Assets/Current liabilities
Measures how easily a business can meet its immediate financial obligations.
Should be between 1.5 and 2
If it’s too low the business will have trouble paying their debts
If it’s too high they have money tied up unprofitably
2
Q
Gearing
A
Non Current liabilities/ Total Equity (CE + NCL) x 100
If it is a highly geared company then they have a high proportion of their finance tied up in loans.
May mean they struggle to pay back their debts
If it’s over 50% it’s highly geared
