Ratio
Ratio Analysis
Ratio analysis is basically used to understanding the financial health of a business entity. With the help of ratios we can easily calculate from current year performance of the companies and are then compared to previous years. Ratio analysis conducts a quantitative analysis of information in a company’s financial statements. These Ratios are most commonly used in banking sector can be divided into five main categories
Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity Ratios
Market Ratios
A) Liquidity Ratios
Liquidity Ratios are used to determine a company's ability to meet its short terms obligations.
These include;
1) Current Ratio
2) Acid Test Ratio
3) Working capital Current Ratio
What Does Current Ratio Mean?
A liquidity ratio that measures a company's ability to pay short-term obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
OR
It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.
Formula = Current Assets / Current Liabilities
This ratio answer in “Times”
Acid Test Ratio
What Does Acid-Test Ratio Mean?
A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.
Also known as the "Acid-test ratio" or the "Quick assets ratio" or “Liquidity ratio”.
OR
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
Formula = Current Assets – Inventories – Prepaid Expense / Current Liabilities
OR
Acid Test Ratio = Quick Assets / Current Liabilities
Quick Assets = Current assets - (Stock + Prepaid Expenses)
This ratio answer in “Times”
Ratio analysis is basically used to understanding the financial health of a business entity. With the help of ratios we can easily calculate from current year performance of the companies and are then compared to previous years. Ratio analysis conducts a quantitative analysis of information in a company’s financial statements. These Ratios are most commonly used in banking sector can be divided into five main categories
Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity Ratios
Market Ratios
A) Liquidity Ratios
Liquidity Ratios are used to determine a company's ability to meet its short terms obligations.
These include;
1) Current Ratio
2) Acid Test Ratio
3) Working capital Current Ratio
What Does Current Ratio Mean?
A liquidity ratio that measures a company's ability to pay short-term obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
OR
It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.
Formula = Current Assets / Current Liabilities
This ratio answer in “Times”
Acid Test Ratio
What Does Acid-Test Ratio Mean?
A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.
Also known as the "Acid-test ratio" or the "Quick assets ratio" or “Liquidity ratio”.
OR
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
Formula = Current Assets – Inventories – Prepaid Expense / Current Liabilities
OR
Acid Test Ratio = Quick Assets / Current Liabilities
Quick Assets = Current assets - (Stock + Prepaid Expenses)
This ratio answer in “Times”