Liquidity ratio comprises
Mathematics
ScanSolve AI Answer
Liquidity ratios comprise:
- Current Ratio: This is calculated as (Current Assets) / (Current Liabilities). It indicates the company's ability to pay current liabilities with current assets.
- Quick Ratio (or Acid-Test Ratio): This is calculated as (Current Assets - Inventory) / (Current Liabilities). It's a more stringent measure as it excludes inventory, which may not be easily converted to cash.
- Cash Ratio: This is calculated as (Cash + Cash Equivalents) / (Current Liabilities). It represents the company's ability to pay off its short-term debts using only its most liquid assets.
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