Liquidity Ratios

• What do liquidity ratios measure?

  The ability of a business to be able to pay its short-term debts.
• What is current ratio?

  Measures assets compared to liabilities to show whether its being managed properly
• What is the ideal current ratio?

  Ideally a business should have £1.50 assets for every £1 debts - ideal ratio 1.5:1 and no less than 1:1
• Current ratio formula

  Current assets/current liabilities
• What is the liquid capital ratio?

  Removes inventory from the calculation - ideal ratio of 1:1
• Liquid capital ration formula

  (Current assets - inventory)/ current liabilities