Liquidity ratios measure the amount of cash or investments that can be converted tocash to pay expenses and short-term debts. Liquidity ratios determine your ability to meetcurrent liabilities.
It measures whether the company has enough liquidity to pay its short termobligations. Theoretically, a current ratio of 2.0 is preferred for most companies. It isimportant to watch this ratio closely. If it begins to go down, then a company’s cash positionmay erode quickly. The quickest way to increase cash is to improve sales.
Current ratio = current assets / current liabilities
Mar 2008 Mar 2009 Mar20101.23 1.36 1.6
Year on year increase in ratio indicates that liquidity status of Raymond is good.
This ratio is also referred to as the acid test
It measures whether the company’s assetsminus inventory will provide enough liquidity to cover its short-term obligations.
Quick Ratio = (Current assets – Inventory) / Current liabilities(Or)Quick ratio = (cash + marketable securities + net receivables) / current liabilities
Mar 2008 Mar 2009 Mar20101.4 1.26 1.42
A 1.0 ratio is usually preferred. Since it has increased in 2010 as compared to 2009,sales are strong enough to meet daily cash obligations.