Breathtaking Liquidity Ratio Analysis Interpretation
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Liquidity ratio analysis interpretation. Introduction As a manager you may want to reward employees based on their performance. Liquidity ratio for a business is its ability to pay off its debt obligations. This analysis is important for lenders and creditors who want to gain some idea of the financial situation of a.
The liquidity ratio then is a computation that. In other words Liquidity Ratios measure how quickly assets can be turned into cash in order to pay the companys short-term debts. Absolute liquid ratio Posted in.
Liquidity ratio analysis is the use of several ratios to determine the ability of an organization to pay its bills in a timely manner. Liquidity Ratios examine the capability of a company to repay both its current liabilities as they become due along with their long-term liabilities as they become current. Financial statement analysis explanations In addition to computing current and quick ratio some analysts also compute absolute liquid ratio to test the liquidity of the business.
Liquidity Ratio Defined In accounting the term liquidity is defined as the ability of a company to meet its financial obligations as they come due. Financial leverage ratios 5. It is the ultimate test.
Liquid assets are those current assets which are easily convertible into cash as and when business desires. Not many company can claim to enjoy the luxury of cash ratio being more than one. The higher ratio the higher is the safety margin that the business possesses to meet its current liabilities.
Inventory traditionally the least liquid asset is excluded for the calculation of liquid ratio. Fundamentally all liquidity ratios measure a firms ability to cover short-term obligations by dividing current assets by current liabilities CL. It is concerned with the relationship between liquid assets and liquid or current liabilities.