Liquidity ratios

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Understanding financial data provides historical insight in turn possible strategies to correct or enhance future business results. http://bit.ly/W55Jjv

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Liquidity ratios

  1. 1. Liquidity ratiosFood Beverage Manager
  2. 2. CURRENT RATIOCurrent ratio = Current assets / Currentliabilities Indicated the extent to which a firm can meet its short-term liabilities form short-term assets.  Thisshould be in he region of 2:0 or 1:1 to reflect a healthy proportion of current assets (Stock, debtors & cash) to current liabilities (overdraft, creditors) Page 2
  3. 3. ACID TEST OR QUICK RATIOAcid test or quick ratio = Current assets –stocks / Current liabilities Measures the firm’s ability to pay off short- term liabilities from current assets without relying upon the sale of its stock. A stricter test of liquidity because it compares only money assets (cash & debtors) to current liabilities. Page 3

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