Reviews on Liquidity Ratios

Topics: Balance sheet, Asset, Market liquidity Pages: 4 (963 words) Published: March 20, 2011
H.T NO. 09L51E0013


Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realising amounts from current, floating or circulating assets. The current assets should either be liquid or nearly liquid. These should be convertible into cash for paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with current liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easily met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations.

1. To study where the company have enough current assets in order to pay off its current liabilities. 2. Liquidity ratios are necessary as they are required by banks when evaluating a loan application. If you take a loan, the lender may require you to mailtain a certain minimum liquidity ratios as a part of loan agreement. 3. To study the liquidity position of a company.

1. To sudy the overall liquidity position of a company.
2. To make a comparitive study in regard to one financial year with another. 3. To study the trend of the change in position ( i.e whether the trend is upward, downward or static) 4. To study the ratios and their influence on operating cycle. 5. To study the comparison of related components like current assets with current liability.

In general, the greater the coverage of liquid...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Liquidity Ratios
  • Liquidity Ratios Essay
  • Liquidity Ratio and Profitability Ratio Report Essay
  • Essay about Liquidity Ratios and Activity Ratios
  • Liquidity Ratio Essay
  • Liquidity Ratio Analysis Essay
  • Ratio Essay

Become a StudyMode Member

Sign Up - It's Free