liquidity ratios Flashcards
(5 cards)
1
Q
what does liquidity ratios show ?
A
if the business can pay off their dues as and when they are needed
2
Q
what is the current ratio formula ?
A
current assets/current liabilities
3
Q
what is the quick ratio ?
A
current assets - inventory/ current liabilities
4
Q
what do you need to know about the current ratio ?
A
the higher the ratio the more liquid the business, ideal ratio is 2:1, if its higher there’s too much tied up in current assets, if its lower there’s a concern over current liabilities
5
Q
what do you need to know about the quick ratio ?
A
the ideal ratio is 1:1
