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  • Liquidity Ratios

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    Ellaine Pearl Almilla
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    Liquidity ratios measure a company's ability to repay short- and long-term obligations. Common liquidity ratios include the current ratio, acid-test ratio, cash ratio, and operating cash flow ratio. The current ratio measures the ability to pay short-term liabilities with current assets. The acid-test ratio excludes inventories from current assets. The cash ratio measures the ability to pay short-term liabilities with just cash. The operating cash flow ratio measures the ability to pay liabilities with cash generated.

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    Liquidity ratios measure a company's ability to repay short- and long-term obligations. Common liquidity ratios include the current ratio, acid-test ratio, cash ratio, and operating cash flow ratio. The current ratio measures the ability to pay short-term liabilities with current assets. The acid-test ratio excludes inventories from current assets. The cash ratio measures the ability to pay short-term liabilities with just cash. The operating cash flow ratio measures the ability to pay liabilities with cash generated.

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    8 views1 page

    Liquidity Ratios

    Uploaded by

    Ellaine Pearl Almilla
    Liquidity ratios measure a company's ability to repay short- and long-term obligations. Common liquidity ratios include the current ratio, acid-test ratio, cash ratio, and operating cash flow ratio. The current ratio measures the ability to pay short-term liabilities with current assets. The acid-test ratio excludes inventories from current assets. The cash ratio measures the ability to pay short-term liabilities with just cash. The operating cash flow ratio measures the ability to pay liabilities with cash generated.

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    Liquidity Ratios

    Liquidity ratios are financial ratios that measure a company’s ability to repay
    both short- and long-term obligations. Common liquidity ratios include the
    following:

    The current ratio measures a company’s ability to pay off short-term liabilities


    with current assets:

    Current ratio = Current assets / Current liabilities

    The acid-test ratio measures a company’s ability to pay off short-term


    liabilities with quick assets:

    Acid-test ratio = Current assets – Inventories / Current liabilities

    The cash ratio measures a company’s ability to pay off short-term liabilities


    with cash and cash equivalents:

    Cash ratio = Cash and Cash equivalents / Current Liabilities

    The operating cash flow ratio is a measure of the number of times a company


    can pay off current liabilities with the cash generated in a given period:

    Operating cash flow ratio = Operating cash flow / Current liabilities

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