Liquidity Ratio’s.

Topics: Inventory, Generally Accepted Accounting Principles, Balance sheet Pages: 4 (574 words) Published: April 17, 2013
Liquidity Ratio’s.
 1)CURRENT RATIO:

CURRENT ASSETS CURRENT LIABILITIES

Interpretation:
The ideal ratio 2:1 . The liquidity position of the company is not satisfactory because it is not reached the ideal ratio 2:1 . Thecompany should increase the current assets and decrease thecurrent liabilities.

Quick Ratio
Current assets –inventories. Current liabilities
 
Interpretation:
the liquidity position of the company is not satisfactory because the ratio is decrease and not reached the ideal ratio1:1 the company should increase quick assets such as cashand bank balance and decrease the current liabilities.

LEVERAGE RATIO’S:
1)Debt equity Ratio
2)Proprietary Ratio
3)Fixed Asset Ratio
4)Interest Coverage RatiO 
 
Debt Equity Ratio:
 
Long term debts/Equity share holder funds.
 
Interpretation
 The Ideal Ratio is 2:1.The solvency position of thecompany is satisfactory but it should decrease theloans such as secured and unsecured. It shouldincrease the reserves and share capital also.

Proprietary Ratio:
 Net Worth Total Assets

Interpretation:These ratio is the indicative of strongfinancial position of business . The higher theratio , the better it is. but the company Should increase the shareholders funds.  

Fixed Assets Ratio:
 
Fixed Assets Net worth

Interpretation: 
This ratio is satisfactory and the ideal ratio is0.67 and it will never be more than 1 , the longterm funds are used to buy or acquire the fixed assets.

Interest coverage Ratio:
 PBIT/Fixed Interest Charges

Interpretation: 
The ideal ratio is 6. This Ratio indicates whether abusiness is earning sufficient profits to pay the interest charges. This ratio is not satisfactory and company should increase the sales and profits , to pay the interest charges for the long term debts.  

Turn Over Ratios
1)inventory holding periods
2)working capital turnover 
3)inventory turnover ratio
 4)fixed assets turnover ratio

Working
 
Capital TurnOver Ratio...
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