Flashcards in Ratios For Accountnt About Cashlow Deck (2)
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1
Q
Current ratio (working capital ratio)
A
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
2
Q
Liquidity ratio (quick or acid test ratio)
A
(Current assets - stock) / current liabilities
Eg seasonal business where stock may not be easy to sell
LR should be at least 1
