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GROUP 11
Define the measurement levels
of liquidity
WHAT IS LIQUIDITY?
-Refers to how quickly and easily you can
turn something you own into cash without
losing its value.
• Net working capital
-Working capital is a financial metric which
represents operating liquidity available to a
business, organisation, or other entity,
including governmental entities.
Formula: Working Capital = Current Assets –
Current Liabilities
• Current Ratio
-The current ratio is a liquidity ratio that
measures whether a firm has enough
resources to meet its short-term obligations.
Formula: Current ratio= Current Asset ÷
Current liabilities
• Quick Ratio
-Also known as the acid-test ratio is a type of
liquidity ratio, which measures the ability of
a company to use its near cash or quick
assets to extinguish or retire its current
liabilities immediately.
Formula: Quick Ratio= Current Assets –
Inventory ÷ Current Liabilities
• Cash Ratio
-Is a measure that tells you how much cash a
company has compared to its short-term
debts or obligations. It shows if a company
has enough cash on hand to quickly pay its
bills or debts that are due soon.
Formula: Cash Ratio= Cash ÷ Current
Liabilities

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Define-the-measurement-levels-of-Liquidity.pptx

  • 2. Define the measurement levels of liquidity
  • 3. WHAT IS LIQUIDITY? -Refers to how quickly and easily you can turn something you own into cash without losing its value.
  • 4. • Net working capital -Working capital is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Formula: Working Capital = Current Assets – Current Liabilities
  • 5. • Current Ratio -The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. Formula: Current ratio= Current Asset ÷ Current liabilities
  • 6. • Quick Ratio -Also known as the acid-test ratio is a type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Formula: Quick Ratio= Current Assets – Inventory ÷ Current Liabilities
  • 7. • Cash Ratio -Is a measure that tells you how much cash a company has compared to its short-term debts or obligations. It shows if a company has enough cash on hand to quickly pay its bills or debts that are due soon. Formula: Cash Ratio= Cash ÷ Current Liabilities